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EXHIBIT 10.30
ASSET PURCHASE AGREEMENT
BY AND AMONG
PROFITSOURCE CORPORATION
"BUYER"
DHR INTERNATIONAL, INC.
"SELLER"
AND
THE STOCKHOLDERS NAMED HEREIN
"STOCKHOLDERS"
NOVEMBER 19, 1998
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TABLE OF CONTENTS
Page No.
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1. Sale and Transfer of Assets.............................................................1
1.1 Assets.......................................................................1
1.2 Assumption of Certain Liabilities............................................1
1.3 Closing......................................................................2
1.4 Purchase Price...............................................................2
1.5 Allocation of Purchase Price.................................................2
1.6 Certificates for Shares......................................................2
2. Representations and Warranties of Seller and the Stockholders...........................2
2.1 Organization and Good Standing...............................................3
2.2 Subsidiaries.................................................................3
2.3 Authorization of Agreement...................................................3
2.4 Acquired Assets..............................................................3
2.5 Financial Condition and Accounting...........................................4
2.6 Certain Property of Seller...................................................5
2.7 Year 2000 Compliance.........................................................7
2.8 No Conflict or Violation.....................................................7
2.9 Consents.....................................................................8
2.10 Labor and Employment Matters.................................................8
2.11 Employee Plans...............................................................8
2.12 Litigation..................................................................11
2.13 Certain Agreements..........................................................11
2.14 Compliance with Applicable Law..............................................12
2.15 Licenses....................................................................12
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2.16 Accounts Receivable.........................................................13
2.17 Intercompany and Affiliate Transactions; Insider Interests..................13
2.18 Insurance...................................................................14
2.19 Customers...................................................................14
2.20 No Undisclosed Liabilities..................................................14
2.21 Taxes.......................................................................14
2.22 Environmental Matters.......................................................16
2.23 Securities Matters..........................................................17
2.24 Buyer and the Consolidation Transactions....................................18
2.25 Minute Books and Stock Records..............................................19
2.26 Brokers.....................................................................19
2.27 Summary of Certain Considerations...........................................19
2.28 Accuracy of Information.....................................................19
3. Representations and Warranties of Buyer................................................20
3.1 Organization and Corporate Authority........................................20
3.2 No Conflict or Violation....................................................20
3.3 Capitalization..............................................................20
3.4 Notes.......................................................................20
3.5 Litigation..................................................................21
3.6 Buyer's Operations and Financial Condition..................................21
3.7 Accuracy of Information.....................................................21
4. Certain Understandings and Agreements of the Parties...................................21
4.1 Access......................................................................21
4.2 Confidentiality.............................................................22
4.3 Certain Changes and Conduct of Business.....................................22
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4.4 Restrictive Covenants.......................................................24
4.5 Securities Restrictions.....................................................27
4.6 Registration................................................................28
4.7 Taxes.......................................................................29
4.8 Access to Records and Files.................................................31
4.9 Cooperation in Litigation...................................................32
4.10 Employment..................................................................32
4.11 Change of Name..............................................................33
4.12 Bulk Sales Laws.............................................................33
4.13 Stockholder Representative..................................................33
4.14 Supplemental Disclosure.....................................................34
4.15 HSR.........................................................................34
4.16 Competing Proposals.........................................................34
4.17 Consolidation Transactions..................................................35
4.18 Collection of Accounts Receivable...........................................35
4.19 Bonus Plan..................................................................36
4.20 Best Efforts................................................................36
4.21 Further Assurances..........................................................36
4.22 Notice of Breach............................................................36
4.23 Share Transfer..............................................................37
5. Survival; Indemnification..............................................................37
5.1 Survival....................................................................37
5.2 Indemnification by Seller and the Stockholders..............................37
5.3 Indemnification by Buyer....................................................38
5.4 Indemnification Procedure...................................................39
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5.5 Payment.....................................................................40
5.6 Limitations.................................................................40
6. Conditions to Closing..................................................................41
6.1 Conditions to Obligations of Each Party.....................................41
6.2 Conditions to Obligations of Buyer..........................................41
6.3 Conditions to Obligations of Seller.........................................44
7. Miscellaneous..........................................................................45
7.1 Termination.................................................................45
7.2 Notices.....................................................................46
7.3 Assignability and Parties in Interest.......................................47
7.4 Governing Law...............................................................47
7.5 Counterparts................................................................47
7.6 Publicity...................................................................47
7.7 Complete Agreement..........................................................47
7.8 Modifications, Amendments and Waivers.......................................48
7.9 Headings; References........................................................48
7.10 Severability................................................................48
7.11 Investigation...............................................................48
7.12 Expenses of Transactions....................................................48
7.13 Arbitration.................................................................48
7.14 Submission to Jurisdiction..................................................50
7.15 Attorneys' Fees.............................................................51
7.16 Enforcement of the Agreement................................................51
7.17 Form of Agreement...........................................................52
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EXHIBITS
A. Form of Bill of Sale
B. Form of Assignment and Assumption Agreement
C. Form of Accredited Investor Questionnaire
D. Summary of Certain Considerations
E. Form of Employee General Release Agreement
F. Form of Stockholder Agreement
F-1 Form of Stock Power
G. Form of Voting Agreement and Irrevocable Proxy
H. Form of Subordination Agreement
I. Form of Employment Agreements for Key Employees
I-2. Form of Employment Agreements for Other Employees
J. Form of Opinion of Counsel to Seller and the Stockholders
K. Form of Opinion of Counsel to Buyer
L. Form of Officer's Certificate
M. Form of Note
SCHEDULES
1.1(a) Acquired Assets
1.1(b) Excluded Assets
1.2 Assumed Liabilities
1.4 Purchase Price
1.5 Allocation of Purchase Price
2 Disclosure Schedule
2.1 Qualifications to do Business
2.5 Financial Statements
2.6(a) Real Property
2.6(b) Personal Property
2.6(c) Proprietary Rights
2.9 Consents
2.10 Employees
2.11 Employee Plans
2.13 Contracts
2.15 Licenses
2.16 Accounts Receivable
2.18 Insurance
2.19 Customers
2.21(b) Tax Filings
2.21(i) 351 Information
2.26 Seller's Brokers
3.5 Buyer Litigation
3.6 Buyer Debt
4.3(a)(i) Contracts in the Ordinary Course of Business
4.3(a)(x) Stockholder Distributions
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4.6 Maximum IPO Shares
4.10 Employees to be Employed by Buyer
4.23 Share Transfer
6.2 Employees Signing Employment Agreements
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") is made and
entered into as of November 19, 1998 by and among DHR International, Inc., an
Illinois corporation ("SELLER"), the stockholders of Seller listed on the
signature page(s) hereof (each such individual a "STOCKHOLDER," and
collectively, the "STOCKHOLDERS"), David Hoffmann, acting for and on behalf of
the Stockholders as their representative pursuant to Section 4.13 (the
"STOCKHOLDER REPRESENTATIVE"), and ProfitSource Corporation, a Delaware
corporation ("BUYER").
A. Seller is engaged in the business of developing and selling
consulting opportunities to recruit executives for client companies (the
"BUSINESS").
B. Prior to the Closing, the Stockholders shall own all of the
issued and outstanding shares of capital stock of Seller.
C. Seller desires to sell and assign to Buyer, and Buyer desires
to purchase and assume from Seller, certain assets, rights and obligations of
Seller on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual representations, warranties and agreements set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. SALE AND TRANSFER OF ASSETS.
1.1 ASSETS.
(a) Acquired Assets. On the terms and subject to the conditions set
forth in this Agreement, on the Closing Date (as hereinafter defined) Seller,
pursuant to a Bill of Sale substantially in the form of Exhibit A (the "BILL OF
SALE"), shall convey, transfer, assign, sell and deliver to Buyer, and Buyer
shall acquire, accept and purchase, all of the assets, properties and rights of
Seller listed on Schedule 1.1(a) (the "ACQUIRED ASSETS").
(b) Excluded Assets. Notwithstanding anything contained in Section
1.1(a) to the contrary, Seller is not selling, and Buyer is not purchasing, any
of the assets listed on Schedule 1.1(b) (the "EXCLUDED ASSETS"), all of which
shall be retained by Seller.
1.2 ASSUMPTION OF CERTAIN LIABILITIES.
On the terms and subject to the conditions set forth in this Agreement,
on the Closing Date, Buyer shall assume those certain liabilities and
obligations of Seller identified on Schedule 1.2 (the "ASSUMED LIABILITIES")
pursuant to an Assignment and Assumption Agreement substantially in the form of
Exhibit B (the "ASSUMPTION AGREEMENT"). Buyer is not assuming, and will not be
obligated or liable for, any liability of Seller not listed on
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Schedule 1.2. Buyer will be indemnified, pursuant to Section 5.2, from and
against any claims in respect of any debts, obligations or liabilities of Seller
of any nature whatsoever other than the Assumed Liabilities.
1.3 CLOSING.
The closing of the sale and purchase of the Acquired Assets and the
assumption of the Assumed Liabilities (the "CLOSING") will take place at the
offices of Gibson, Dunn & Crutcher LLP, 4 Park Plaza, Irvine, California, on a
date to be selected by Buyer after all the conditions set forth in Article 6
have either been satisfied or, in the case of conditions not satisfied, waived
in writing by the party entitled to the benefit of such conditions (the "CLOSING
DATE"). Prior to the Closing Date, Buyer shall provide written notice (the
"CLOSING NOTICE") to Seller informing Seller of the anticipated Closing Date. At
the Closing, Seller shall convey, transfer, assign, sell and deliver to Buyer
the Acquired Assets, by delivery to Buyer of the Bill of Sale, and Buyer shall
thereupon assume the Assumed Liabilities by execution and delivery of the
Assumption Agreement and pay to Seller the Purchase Price as provided in Section
1.4.
1.4 PURCHASE PRICE.
The consideration to be paid by Buyer for the Acquired Assets (the
"PURCHASE Price") is described in Schedule 1.4.
1.5 ALLOCATION OF PURCHASE PRICE.
The Purchase Price will be allocated for tax purposes (the "ALLOCATION")
in the manner set forth on Schedule 1.5. The Allocation will be used by the
parties in preparing all applicable tax returns and shall be binding upon the
parties and upon each of their successors and assigns, and the parties shall
report the transaction herein for tax purposes in accordance with the Allocation
and shall not take any position or action inconsistent with the Allocation.
1.6 CERTIFICATES FOR SHARES.
In order to facilitate replacement of certificates for shares of Common
Stock (as defined herein) constituting part of the Purchase Price upon an IPO
(as defined herein) with the transfer agent's form of certificate, and to
facilitate enforcement of the Stockholder Agreement (as defined herein), Buyer
will keep custody of the certificates representing such shares until the IPO and
until such shares are no longer subject to the Stockholder Agreement and
recipients of shares will execute and deliver blank stock powers as described in
Section 6.2(c)(vi). This custody arrangement will not affect the rights as a
stockholder of any permitted recipient of such shares.
2. REPRESENTATIONS AND WARRANTIES OF SELLER AND THE STOCKHOLDERS.
Each representation and warranty contained in this Article 2 is
qualified by the disclosures made in the disclosure schedule attached hereto as
Schedule 2 (the "DISCLOSURE SCHEDULE"). This Article 2 and the Disclosure
Schedule shall be read together as an integrated provision. Seller and the
Stockholders, jointly and severally, represent and warrant to Buyer that:
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2.1 ORGANIZATION AND GOOD STANDING.
Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of Illinois, with full corporate power and
authority to carry on the Business as it is now and has since its organization
been conducted and as proposed to be conducted, and to own, lease or operate the
Acquired Assets. Seller is duly qualified to do business and is in good standing
in every jurisdiction in which the character of the properties owned or leased
by it or the nature of the business conducted by it makes such qualification
necessary, except where failure to be so qualified would not have a material
adverse effect on the Business or Seller's assets or financial condition (a
"MATERIAL ADVERSE EFFECT"). Schedule 2.1 lists all of the jurisdictions in which
Seller is qualified to do business. Complete and accurate copies of the charter
documents and bylaws of Seller, with all amendments thereto to the date hereof,
have been furnished to Buyer or its representatives.
2.2 SUBSIDIARIES.
Seller does not own, and did not own at any time, directly or
indirectly, either of record or beneficially, any equity interest in any entity,
and does not have the right to acquire any equity interest in any entity.
2.3 AUTHORIZATION OF AGREEMENT.
Seller has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby. This
Agreement and all other agreements and instruments to be executed by the parties
hereto in connection herewith (together with all other documents to be delivered
in connection herewith or therewith, collectively, the "TRANSACTION DOCUMENTS")
have (except for Transaction Documents to be executed and delivered solely by
Buyer) been duly and validly approved by the Board of Directors of Seller (the
"BOARD OF DIRECTORS") and no other proceedings on the part of Seller or the
Stockholders are necessary to approve this Agreement and to consummate the
transactions contemplated hereby. This Agreement and the other Transaction
Documents to be delivered by Seller or any Stockholder have been (or upon
execution will have been) duly executed and delivered by Seller and each
Stockholder, have been effectively authorized by all necessary action, corporate
or otherwise, and constitute (or upon execution will constitute) legal, valid
and binding obligations of Seller and each Stockholder, except as such
enforceability may be limited by general principles of equity and bankruptcy,
insolvency, reorganization and moratorium and other similar laws relating to
creditors' rights (the "BANKRUPTCY EXCEPTION.")
2.4 ACQUIRED ASSETS.
(a) Ownership. Seller is the lawful owner of or has the right to use and
transfer to Buyer each of the Acquired Assets. The Acquired Assets are free and
clear of all liens, mortgages, pledges, security interests, restrictions, prior
assignments, encumbrances and claims of any kind except any of the following:
(i) purchase money security interests in specific items of equipment each having
a value not in excess of $25,000; (ii) Personal Property leased pursuant to
Personal Property Leases; (iii) liens for taxes not yet payable; (iv) additional
security
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interests and liens consented to in writing by Buyer; (v) liens of materialmen,
mechanics, warehousemen, carriers, or other similar liens arising in the
ordinary course of business and securing obligations which are not delinquent;
(vi) liens incurred in connection with the extension, renewal or refinancing of
the indebtedness secured by liens of the type described above in clauses (i) or
(ii) above, provided that any extension, renewal or replacement lien is limited
to the property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase. The
delivery to Buyer of the Bill of Sale will vest good title to the Acquired
Assets in Buyer, free and clear of all liens, mortgages, pledges, security
interests, restrictions, prior assignments, encumbrances and claims of any kind.
There are no outstanding agreements, options or commitments of any nature
obligating Seller to transfer any of the Acquired Assets or rights or interests
therein to any party.
(b) Sufficiency of Assets. The Acquired Assets (i) constitute all of the
assets and properties used by Seller in connection with the operation of the
Business; and (ii) are sufficient and adequate to conduct the Business as
presently conducted.
2.5 FINANCIAL CONDITION AND ACCOUNTING.
(a) Financial Statements. Schedule 2.5 sets forth the balance sheets of
Seller as of December 31, 1995, 1996 and 1997 and the related statements of
income and cash flow for the fiscal years then ended (the "YEAR-END FINANCIAL
STATEMENTS"), and the balance sheet, and the related statements of income and
cash flow of Seller for the nine-month period ended September 30, 1998 or the
most recent interim date available (the "INTERIM FINANCIAL STATEMENTS," and with
the Year-End Financial Statements, the "FINANCIAL STATEMENTS"). The Financial
Statements (i) were prepared in accordance with the books and records of Seller;
(ii) were prepared in accordance with generally accepted accounting principles
("GAAP") consistently applied; (iii) fairly present the financial condition and
the results of the operations of Seller as at the relevant dates thereof and for
the periods covered thereby; (iv) to the extent required by GAAP, contain and
reflect all necessary adjustments and accruals for a fair presentation of the
financial condition and the results of the operations of Seller for the periods
covered by the Financial Statements (except that the Interim Financial
Statements are subject to year-end adjustments, the net effect of which will not
represent a Material Adverse Change); (v) to the extent required by GAAP,
contain and reflect adequate provisions for all reasonably anticipated
liabilities, including, without limitation, for all taxes, federal, state, local
or foreign, with respect to the period then ended and all prior periods; and
(vi) do not contain any items of a special or nonrecurring nature, except as
expressly stated therein. The Interim Financial Statements accurately reflect
all information normally reported to the independent public accountants of
Seller for the preparation of its financial statements. There have been no
changes or modifications of revenue recognition, cost allocation practices or
method of, accounting or other financial or operational practices or principles
except for any such change required by reason of a concurrent change in GAAP
during the periods covered by the Financial Statements.
(b) Absence of Certain Changes. Since December 31, 1997, there has not
been any Material Adverse Change, or any event, action, or circumstance of the
kind described in Section 4.3(a). For purposes of this Agreement, a "MATERIAL
ADVERSE CHANGE" means any
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event, circumstance, condition, development or occurrence causing, resulting in,
having, or that could reasonably be expected to have, a Material Adverse Effect.
2.6 CERTAIN PROPERTY OF SELLER.
(a) Real Property. Seller has never and does not currently own any real
property. Schedule 2.6(a) lists all real properties leased by Seller, including
a brief description of the operating facilities located thereon, the annual rent
payable thereon, the length of the term, any option to renew with respect
thereto and the notice and other provisions with respect to termination of
rights to the use thereof.
(i) Seller has a valid leasehold in the real properties shown in
Schedule 2.6(a) under written leases (each lease being referred to herein as a
"REAL PROPERTY LEASE," and collectively the "REAL PROPERTY LEASES") and to the
knowledge of Seller or any Stockholder, each Real Property Lease is a valid and
binding obligation of each of the other parties thereto, except as
enforceability may be limited by the Bankruptcy Exception.
(ii) Seller is not, and neither Seller nor any Stockholder has
any knowledge that any other party to any Real Property Lease is, in default
with respect to any material term or condition thereof, no event has occurred
which through the passage of time or the giving of notice, or both, would
constitute a default thereunder or would cause the acceleration of any
obligation of any party thereto or the creation of a lien or encumbrance upon
any asset of Seller.
(iii) To the knowledge of Seller or any Stockholder all of the
buildings, fixtures and other improvements to which the Real Property Leases
relate are in good operating condition and repair, and the operation thereof as
presently conducted is not in violation of any applicable building code, zoning
ordinance or other law or regulation.
(b) Personal Property. Schedule 2.6(b) lists all vehicles, furniture,
fixtures, equipment and other items of tangible personal property owned or
leased by Seller other than the Excluded Assets (the "PERSONAL PROPERTY"). All
items of Personal Property are in good operating condition and repair sufficient
to enable Seller to operate the Business as presently conducted. Schedule 2.6(b)
identifies each item of Personal Property as owned or leased by Seller. The
items of Personal Property identified as owned are Acquired Assets, and the
items of Personal Property identified as leased are leased pursuant to lease
agreements that are Acquired Assets. All of such leases are valid and in full
force and effect and none of such Personal Property is subject to any sublease,
license or other agreement granting to any person any right to use such property
(each such lease, sublease, license or other agreement, a "PERSONAL PROPERTY
LEASE," and collectively the "PERSONAL PROPERTY LEASES"). Seller is not in
material breach of or default, and no event has occurred which, with due notice
or lapse of time or both, may constitute such a material breach or default,
under any Personal Property Lease.
(c) Proprietary Rights.
(i) Schedule 2.6(c) lists all Proprietary Rights (either
registered, applied for, or common law) owned by, registered in the name of,
licensed to, or otherwise used by Seller
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that are material to the Business. For purposes of this Agreement "PROPRIETARY
RIGHTS" means trademarks and service marks (registered or unregistered), trade
dress, trade names including, without limitation, the name DHR International,
Inc. and other names and slogans embodying business or product goodwill or
indications of origin, all applications or registrations in any jurisdiction
pertaining to the foregoing and all goodwill associated therewith, as well as
the following: (i) patents, patentable inventions, discoveries, improvements,
ideas, know-how, formula, methodology, processes, technology and computer
programs, software and databases (including source code, object code,
development documentation, programming tools, drawings, specifications and
data), and all applications or registrations in any jurisdiction pertaining to
the foregoing, including all reissues, continuations, divisions,
continuations-in-part, renewals or extensions thereof; (ii) trade secrets,
know-how, including confidential and other non-public information, and the right
in any jurisdiction to limit the use or disclosure thereof; (iii) copyrights in
writings, designs, mask works or other works, and registrations or applications
for registration of copyrights in any jurisdiction; (iv) licenses, including,
without limitation, software licenses, immunities, covenants not to sue and the
like relating to any of the foregoing; (v) Internet Web sites, domain names and
registrations or applications for registration thereof; (vi) customer lists;
(vii) books and records describing or used in connection with any of the
foregoing; and (viii) claims or causes of action arising out of or related to
infringement or misappropriation of any of the foregoing.
(ii) All of the Proprietary Rights that are material to the
Business are owned by Seller free and clear of any and all liens, security
interests, claims, charges and encumbrances or are used by Seller pursuant to a
valid and enforceable license granting rights sufficiently broad to permit the
historical and anticipated uses of the Proprietary Rights in connection with the
conduct of the Business in the manner presently conducted and to convey such
right and authority to Buyer.
(iii) Schedule 2.6(c) lists any licenses, sublicenses or other
agreements pursuant to which Seller grants a license to any person to use the
Proprietary Rights or is a licensee of any of the Proprietary Rights.
(iv) The grants, registrations and applications included in or
applicable to the Proprietary Rights listed on Schedule 2.6(c) have not lapsed,
expired or been abandoned and no application or registration thereof is the
subject of any proceeding before any court, arbitrator, federal, state, local or
foreign government agency, regulatory body, or other governmental authority
(each a "GOVERNMENTAL ENTITY," and collectively "GOVERNMENTAL ENTITIES") with
authority to bind Seller. There have not been any actions or other judicial or
adversary proceedings involving Seller concerning any of the Proprietary Rights,
nor to the knowledge of Seller or any Stockholder, is any such action or
proceeding threatened.
(v) The conduct of the Business does not conflict with valid
patents, trademarks, trade secrets, trade names, or other intellectual property
rights of others. To the knowledge of Seller or any Stockholder, there are no
conflicts with or infringements of any of the Proprietary Rights by any third
party.
(vi) Seller is the sole owner of its trade secrets, including,
without limitation, customer lists, formulas, inventions, processes, know-how,
computer programs and routines
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associated, developed or used in connection with the Business (the "TRADE
SECRETS"), free and clear of any liens, encumbrances, restrictions, or legal or
equitable claims of others, and has taken all reasonable security measures to
protect the secrecy, confidentiality, and value of the Trade Secrets. Any of the
employees of Seller and any other persons who, either alone or in concert with
others, developed, invented, discovered, derived, programmed or designed the
Trade Secrets, or who have knowledge of or access to information relating to
them, have been put on notice and have entered into agreements that the Trade
Secrets are proprietary to Seller and not to be divulged or misused.
(vii) All the Trade Secrets are presently valid and protectible
and are not part of the public knowledge or literature; and have not been used,
divulged, or appropriated for the benefit of any past or present employees or
other persons, or to the detriment of Seller or the Business.
(viii) Seller has taken all commercially reasonable precautions
necessary to ensure that all Proprietary Rights have been properly protected and
have been kept secret.
2.7 YEAR 2000 COMPLIANCE.
All date-related output, calculations or results before, during or after
the calendar year 2000 that are produced or used by any hardware, software
(other than software that is generally available upon payment of a "shrink-wrap"
type license and that has not been customized for use in connection with the
Business), firmware or facilities systems (the "COMPUTER SYSTEMS") owned or used
by Seller and material to the Business are Year 2000 Compliant. For purposes of
this Section, "YEAR 2000 COMPLIANT" means:
(a) all dates receivable by the Computer Systems, as well as
calculations, output and results will (i) include a consistent-length century
indicator of at least two base ten digits, and (ii) have date elements in
interfaces and data storage that will permit specifying the century to eliminate
date ambiguity;
(b) when any date data is represented without a century, either in an
interface or in data storage, the correct century will be unambiguous for all
manipulations involving that data;
(c) data calculations involving either a single century or multiple
centuries will neither (i) cause an abnormal ending or operation, nor (ii)
generate incorrect results or results inconsistent with output or results from
any other century;
(d) when sorting by date, all records will be sorted in accurate
chronological sequence; and when the date is used as a key, records will be read
and written in accurate chronological sequence; and
(e) leap years will be determined by the following standard: (i) if
dividing the year by 4 yields an integer, it is a leap year, except for years
ending in 00, but (ii) a year ending in 00 is a leap year if dividing it by 400
yields an integer.
2.8 NO CONFLICT OR VIOLATION.
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The execution, delivery and performance by Seller and the Stockholders
of this Agreement and the other Transaction Documents to be delivered by Seller
or any Stockholder and the consummation of the transactions contemplated hereby
and thereby do not and will not: (i) violate or conflict with any provision of
the charter documents or bylaws of Seller; (ii) violate in any material respect
any provision or requirement of any domestic or foreign, federal, state, or
local law, statute, judgment, order, writ, injunction, decree, award, rule, or
regulation of any Governmental Entity applicable to Seller or the Business;
(iii) violate in any material respect, result in a material breach of,
constitute (with due notice or lapse of time or both) a material default or
cause any material obligation, penalty, premium or right of termination to arise
or accrue under any Contract (as hereinafter defined); (iv) result in the
creation or imposition of any material lien, charge or encumbrance of any kind
whatsoever upon any of the properties or assets of Seller; or (v) result in the
cancellation, modification, revocation or suspension of any material license,
permit, certificate, franchise, authorization or approval issued or granted by
any Governmental Entity (each a "LICENSE," and collectively, the "LICENSES").
2.9 CONSENTS.
Schedule 2.9 lists all consents and notices required to be obtained or
given by or on behalf of Seller or any Stockholder before consummation of the
transactions contemplated by this Agreement in compliance with all applicable
laws, rules, regulations, or orders of any Governmental Entity, or the
provisions of any material Contract, and all such consents have been duly
obtained and are in full force and effect, except where the failure to obtain
such consent will not have a Material Adverse Effect.
2.10 LABOR AND EMPLOYMENT MATTERS.
Schedule 2.10 lists all employees of Seller, including date of
retention, current title and compensation. There is no employment agreement,
collective bargaining agreement or other labor agreement to which Seller is a
party or by which it is bound. Seller has complied in all material respects with
all applicable laws, rules and regulations relating to the employment of labor,
including those related to wages, hours, collective bargaining and the payment
and withholding of taxes and other sums as required by appropriate Governmental
Entities and has withheld and paid to the appropriate Governmental Entities or
is holding for payment not yet due to such Governmental Entities, all amounts
required to be withheld from employees of Seller and is not liable for any
arrears of wages, taxes, penalties or other sums for failure to comply with any
of the foregoing. There is no unfair labor practice complaint against Seller
pending before the National Labor Relations Board or any state or local agency;
pending labor strike or other material labor trouble affecting Seller; material
labor grievance pending against Seller; pending representation question
respecting the employees of Seller; pending arbitration proceedings arising out
of or under any collective bargaining agreement to which Seller is a party. For
purposes of this Agreement, "EMPLOYEES" includes employees, independent
contractors and other persons filling similar functions.
2.11 EMPLOYEE PLANS.
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(a) All accrued obligations of Seller, whether arising by operation of
law, by contract or past custom, or otherwise, for payments by Seller to trusts
or other funds or to any Governmental Entity, with respect to unemployment
compensation benefits, social security benefits or any other benefits or
obligations, with respect to employment of employees through the date hereof
have been paid or adequate accruals therefor have been made in the Financial
Statements, and adequate accruals for all such obligations will be made through
the Closing Date. All reasonably anticipated obligations of Seller with respect
to employees, whether arising by operation of law, by contract, by past custom,
or otherwise, for salaries, vacation and holiday pay, sick pay, bonuses and
other forms of compensation payable to employees in respect of the services
rendered by any of them prior to the date hereof have been or will be paid by
Seller prior to the Closing Date or adequate accruals therefor have been made in
the Financial Statements, and adequate accruals for all such obligations will be
made through the Closing Date.
(b) Schedule 2.11 lists all bonus, pension, stock option, stock
purchase, benefit, welfare, profit-sharing, deferred compensation, retainer,
consulting, retirement, welfare, disability, vacation, severance,
hospitalization, insurance, incentive, deferred compensation and other similar
fringe or employee benefit plans, funds, programs or arrangements, whether
written or oral, in each of the foregoing cases which cover, are maintained for
the benefit of, or relate to any or all current or former employees,
stockholders, officers or directors of Seller, and any other entity ("ERISA
AFFILIATE") related to Seller under Section 414(b), (c), (m) and (o) of the
Internal Revenue Code of 1986, as amended (the "CODE") (the "EMPLOYEE PLANS"),
together with all accrued liabilities under such Employee Plans. With respect to
each Employee Plan, Seller has made available to Buyer, to the extent
applicable, true and complete copies of (i) all plan documents, (ii) the most
recent determination letter received from the Internal Revenue Service (the
"IRS"), (iii) the most recent application for determination filed with the IRS,
(iv) the latest actuarial valuations, (v) the latest financial statements, (vi)
the three (3) most recent Form 5500 Annual Reports, including Schedule A and
Schedule B thereto, (vii) all related trust agreements, insurance contracts or
other funding arrangements which implement any of such Employee Plans, (viii)
all Summary Plan Descriptions and summaries of material modifications and all
modifications thereto communicated to employees, and (ix) in the case of stock
options or stock appreciation rights issued under any Employee Plan, a list of
holders, dates of grant, number of shares, exercise price per share and dates
exercisable. Neither Seller nor any ERISA Affiliate of Seller has any liability
or contingent liability with respect to the Employee Plans, nor will any of the
Acquired Assets be subject to any lien, charge or claim relating to the
obligations of Seller with respect to employees or Employee Plans. No party to
any Employee Plan is in default with respect to any material term or condition
thereof, nor has any event occurred which through the passage of time or the
giving of notice, or both, would constitute a default thereunder or would cause
the acceleration of any obligation of any party thereto.
(c) Each of the Employee Plans, and the administration thereof, is and
has been in material compliance with the requirements provided by any and all
applicable statutes, orders or governmental rules or regulations currently in
effect, including, without limitation, the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and the Code. Each of Seller and its ERISA
Affiliates has made full and timely payment of all amounts required to be
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contributed under the terms of each Employee Plan and applicable law or required
to be paid as expenses or benefits under such Employee Plan, and has made
adequate provision for reserve to satisfy contributions and payments not yet
made because they are not yet due under the terms of such Employee Plan. Each
Employee Plan that is intended to be qualified under Section 401(a) of the Code
is and has always been so qualified, and each trust established in connection
with any Employee Plan which is intended to be exempt from federal income
taxation under Section 501(a) of the Code is and has always been so exempt, and
either has received a favorable determination letter with respect to such
qualified status from the IRS or has filed a request for such determination
letter with the IRS within the remedial amendment period. Such determination or
qualified status will apply from and after the effective date of any such
Employee Plan. No act or omission has occurred since the date of the last
favorable determination issued with respect to an Employee Plan which could
result in a revocation of the Plan's qualified status.
(d) Neither Seller nor any ERISA Affiliate sponsors or has sponsored,
maintained, contributed to, incurred an obligation to contribute to or withdrawn
from, any Multi-Employer Plan (as defined in Section 4000(a)(3) of ERISA) or any
Multiple Employer Plan (as defined in ERISA Sections 4063 or 4064 or Code
Section 413), whether or not terminated, for which any withdrawal or partial
withdrawal liability has been or could be incurred, whether or not any such
liability has been asserted by or on behalf of any such plan.
(e) Buyer has been provided copies of all manuals, brochures,
publications or similar documents of Seller regarding office administration,
personnel matters and hiring, evaluation, supervision, training, termination and
promotion of employees, including, without limitation, all communications to
employees concerning such matters, each of which is an accurate description of
the terms of such plans or policies. Seller has no affirmative action
obligations.
(f) There are no contracts, agreements, plans or arrangements covering
any of Seller's employees with "change of control" or similar provisions. There
is no contract, agreement, plan or arrangement covering Seller or any employee,
that individually or collectively could give rise to the payment of any amount
that would not be deductible pursuant to the terms of Section 280G of the Code.
Neither Seller nor any of its ERISA Affiliates has incurred any liability under
the Worker Adjustment Retraining and Notification Act or any similar state law
relating to employment termination in connection with a mass layoff, plant
closing or similar event, and the transactions contemplated by this Agreement
will not give rise to any such liability.
(g) No Employee Plan has participated in, engaged in or been a party to
any Prohibited Transaction (pursuant to Section 4935 of the Code or Section 406
of ERISA and which is not exempt under Section 4975 of the Code or Section 408
of ERISA) and neither Seller nor any ERISA Affiliate has had asserted against it
any claim for any excise tax or penalty imposed under ERISA or the Code with
respect to any Employee Plan nor, to the knowledge of Seller or any Stockholder,
is there any basis for any such claim. No officer, director or employee of
Seller or any of its ERISA Affiliates has committed a material breach of any
responsibilities or obligations imposed upon fiduciaries by Title I of ERISA
with respect to any Employee Plan.
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(h) With respect to any Group Health Plan (as defined in Section
5000(b)(1) of the Code) maintained by Seller or any of its ERISA Affiliates,
each of Seller and the ERISA Affiliates have complied in all material respects
to the provisions of Part 6 of Title I of ERISA and Sections 4980B, 9801 and
9802 of the Code. Seller is not obligated to provide health care or other
welfare benefits of any kind to its retired or former employees or their
dependents, or to any person not actively employed by it, pursuant to any
agreement or understanding.
2.12 LITIGATION.
There are no claims, actions, suits or proceedings of any nature pending
or, to the knowledge of Seller or any Stockholder, threatened by or against the
Stockholders, Seller, the officers, directors, employees, agents of Seller, or
any of their respective Affiliates involving, affecting or relating to the
Business or any assets, properties or operations of Seller or the transactions
contemplated by this Agreement. Neither Seller nor any of the Acquired Assets is
subject to any order, writ, judgment, award, injunction or decree of any
Governmental Entity. For purposes of this Agreement, "AFFILIATE" shall have the
meaning ascribed to such term in Rule 405 under the Securities Act.
2.13 CERTAIN AGREEMENTS.
(a) Schedule 2.13 lists all material contracts, agreements, instruments,
licenses, commitments and other arrangements to which Seller is a party or
otherwise relating to or affecting any of its assets, properties or operations,
including, without limitation, all material written, or oral, (i) contracts,
agreements and commitments not made in the ordinary course of business, (ii)
agency and brokerage agreements, (iii) service and other customer contracts,
(iv) contracts, loan agreements, letters of credit, repurchase agreements,
mortgages, security agreements, guarantees, pledge agreements, trust indentures,
promissory notes and other documents or arrangements relating to the borrowing
of money or for lines of credit, (v) tax sharing agreements, real property
leases or any subleases relating thereto, personal property leases, any material
agreement relating to Proprietary Rights (including service agreements relating
thereto) and insurance contracts, (vi) agreements and other arrangements for the
sale of any assets, property or rights other than in the ordinary course of
business or for the grant of any options or preferential rights to purchase any
assets, property or rights, (vii) documents granting any power of attorney with
respect to the affairs of Seller, (viii) suretyship contracts, performance
bonds, working capital maintenance or other forms of guaranty agreements, (ix)
contracts or commitments limiting or restraining Seller or any of its employees
or Affiliates from engaging or competing in any lines of business or with any
person or entity, (x) partnership or joint venture agreements, (xi) stockholder
agreements or agreements relating to the issuance of any securities of Seller or
the granting of any registration rights with respect thereto, and (xii) all
amendments, modifications, extensions or renewals of any of the foregoing (each
a "CONTRACT," and collectively, the "CONTRACTS.")
(b) Each Contract is valid, binding and enforceable against the parties
thereto in accordance with its terms, except as such enforceability may be
limited by the Bankruptcy Exception, and is in full force and effect on the date
hereof. Seller has performed all material
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obligations required to be performed by it under, and is not in material default
or breach of, any Contract, and no event has occurred which, with due notice or
lapse of time or both, would constitute such a material default or breach.
(c) To the knowledge of Seller or any Stockholder, no other party to any
Contract is in material default or breach in respect thereof, and no event has
occurred which, with due notice or lapse of time or both, would constitute such
a material default or breach.
(d) There are no material disputes with any party to any Contract, and
to the knowledge of Seller or any Stockholder, no party to any Contract has
credibly threatened to cancel or terminate any such agreement, whether as a
result of the transactions contemplated by this Agreement or otherwise.
(e) Seller has delivered to Buyer or its representatives true and
complete originals or copies of all the Contracts and a copy of every Material
Notice received by Seller or any Stockholder since January 1, 1996, with respect
to any of the Contracts. For purposes hereof, "MATERIAL NOTICE" means those
notices alleging a material breach of a Contract or intention to terminate or
materially modify a Contract, but does not include routine correspondence.
(f) To the knowledge of Seller or any Stockholder, no party to any
Contract has assigned any of its rights or delegated any of its duties under
such Contract.
2.14 COMPLIANCE WITH APPLICABLE LAW.
The operations of Seller are, and have been, conducted in all material
respects in accordance with all applicable laws, regulations, orders and other
requirements of all Governmental Entities having jurisdiction over it and its
assets, properties and operations, including, without limitation, all such laws,
regulations, orders and requirements relating to the Business, except in any
case where the failure to so conduct its operations would not have a Material
Adverse Effect. Seller has not received any notice of any material violation of
any such law, regulation, order or other legal requirement, and is not in
material default with respect to any order, writ, judgment, award, injunction or
decree of any Governmental Entity, applicable to Seller or any of its assets,
properties or operations. To the knowledge of Seller or any Stockholder, there
are no proposed changes in any such laws, rules or regulations (other than laws
of general applicability) that would adversely affect the transactions
contemplated by this Agreement or reasonably be expected to have a Material
Adverse Effect.
2.15 LICENSES.
(a) Schedule 2.15 lists all material Licenses issued or granted to
Seller, and all pending applications therefor. The Licenses constitute all
material Licenses required, and consents, approvals, authorizations and other
requirements prescribed, by any law, rule or regulation which must be obtained
or satisfied by Seller in connection with the Business or that are necessary for
the execution, delivery and performance by Seller and the Stockholders of this
Agreement and the other Transaction Documents. The Licenses are sufficient and
adequate in all material respects to permit the continued lawful conduct of the
Business in the manner now
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conducted and the ownership, occupancy and operation of Seller's properties for
its present uses and the execution, delivery and performance of this Agreement.
No jurisdiction in which Seller is not qualified or licensed as a foreign
corporation has demanded or requested in writing that it qualify or become
licensed as a foreign corporation. Seller has delivered to Buyer or its
representatives true and complete copies of all the material Licenses together
with all amendments and modifications thereto.
(b) Each License has been issued to, and duly obtained and fully paid
for by Seller and is valid, in full force and effect, and not subject to any
pending or known threatened administrative or judicial proceeding to suspend,
revoke, cancel or declare such License invalid in any respect. Seller is not in
violation in any material respect of any of the Licenses. The Licenses have
never been suspended, revoked or otherwise terminated, subject to any fine or
penalty, or subject to judicial or administrative review, for any reason other
than the renewal or expiration thereof, nor has any application of Seller for
any License ever been denied.
2.16 ACCOUNTS RECEIVABLE.
Schedule 2.16 lists all accounts receivable of Seller (the "ACCOUNTS
RECEIVABLE") as of the date hereof, including their aging. Schedule 2.16 will be
updated at the Closing Date to reflect all Accounts Receivable as of the Closing
Date, including their aging. All Accounts Receivable as of the date hereof
represent, and all Accounts Receivable as of the Closing Date will represent,
valid obligations arising from sales actually made or services actually
performed in the ordinary course of business that are current and collectible in
amounts not less than the aggregate amount thereof (net of reserves established
in accordance with GAAP applied consistently with prior practice) carried (or to
be carried) on the books of Seller and reflected in the Financial Statements,
and are not subject to any valid counterclaims or set-offs, disputes or
contingencies.
2.17 INTERCOMPANY AND AFFILIATE TRANSACTIONS; INSIDER INTERESTS.
(a) There are no material transactions, agreements or arrangements of
any kind, direct or indirect, between Seller and any director, officer,
employee, stockholder, relative or Affiliate of Seller or the Stockholders,
including, without limitation, loans, guarantees or pledges to, by or for Seller
or from, to, by or for any of such persons, that are either (i) currently in
effect, or (ii) reflected in Seller's financial results.
(b) No officer, director or stockholder of Seller, or any Affiliate of
any such person, now has, or within the last three (3) years had, either
directly or indirectly:
(i) an equity or debt interest in any corporation, partnership,
joint venture, association, organization or other person or entity which
furnishes or sells, or during such period furnished or sold, services or
products to Seller, or purchased, or during such period purchased from Seller,
any goods or services, or otherwise does, or during such period did, business
with Seller;
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(ii) a beneficial interest in any contract, commitment or
agreement to which Seller is or was a party or under which it was obligated or
bound or to which its properties may be or may have been subject, other than
stock options and other contracts, commitments or agreements between Seller and
such persons in their capacities as employees, officers or directors of Seller;
or
(iii) any rights in or to any of the assets, properties or rights
used by Seller in the ordinary course of business.
2.18 INSURANCE.
Schedule 2.18 lists all insurance policies of any nature whatsoever
maintained by Seller at any time during the three (3) years prior to the date of
this Agreement and the annual or other premiums payable from the time
thereunder. There are no outstanding requirements or recommendations by any
insurance company that issued any such policy or by any Board of Fire
Underwriters or other similar body exercising similar functions or by any
Governmental Entity that require or recommend any changes in the conduct of the
Business, or any repairs or other work to be done on or with respect to any of
the properties or assets of Seller. Seller has not received any notice or other
communication from any such insurance company within the three (3) years
preceding the date hereof canceling or materially amending or materially
increasing the annual or other premiums payable under any of such insurance
policies, and to the knowledge of Seller or any Stockholder, no such
cancellation, amendment or increase of premiums is threatened.
2.19 CUSTOMERS.
Schedule 2.19 lists the ten (10) largest customers of Seller, together
with revenues to Seller from each such customer during the most recent complete
fiscal year and the current fiscal year to the date hereof, and the scheduled
termination dates of their current contracts with Seller. None of such customers
has given written notice to Seller of an intention to terminate or materially
impair its business relationship with Seller, and neither Seller nor any
Stockholder has any knowledge of any event that would precipitate the
impairment, or termination of, or the failure to renew, or entitle any such
customer to terminate, such business relationship.
2.20 NO UNDISCLOSED LIABILITIES.
Except as and to the extent specifically reflected or reserved against
in the Interim Financial Statements and except as incurred in the ordinary
course of business since the date of the Interim Financial Statements, Seller
has no material liabilities or obligations of any nature, whether absolute,
accrued, contingent or otherwise, and whether due or to become due (including,
without limitation, any liability for taxes and interest, penalties and other
charges payable with respect to any such liability or obligation) and no facts
or circumstances exist which, with notice or the passage of time or both, could
reasonably be expected to result in any material claims against or obligations
or liabilities of Seller.
2.21 TAXES.
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(a) For purposes of this Agreement, the following terms shall have the
meanings specified hereinbelow:
(i) "PRE-ACQUISITION TAX LIABILITY" means a Tax Liability of Seller for
or with respect to (A) any Pre-Acquisition Taxable Period, or (B) any Straddle
Period to the extent allocable to the period ending on the Closing Date.
(ii) "PRE-ACQUISITION TAXABLE PERIOD" means a taxable period of Seller
that ends on any day on or before the Closing Date.
(iii) "STRADDLE PERIOD" means a taxable period of Seller that includes
but does not end on the Closing Date.
(iv) "TAX" or "TAXES" means all taxes, including, without limitation,
all net income, gross receipts, sales, use, withholding, payroll, employment,
social security, unemployment, excise and property taxes, plus applicable
penalties and interest thereon.
(v) "TAX LIABILITIES" means all liabilities for Taxes.
(vi) "TAX PROCEEDING" means any audit or other examination, or any
judicial or administrative proceeding, relating to liability for or refunds or
adjustments with respect to Taxes.
(vii) "TAX RETURN" shall mean all reports and returns required to be
filed with respect to Taxes.
(b) Tax Returns, Tax Payments and Tax Audits. Seller has (i) timely
filed or caused to be timely filed all Tax Returns of Seller required to be
filed as of the date hereof (after giving effect to any extension of time to
file such Tax Returns) and (ii) paid, when due, all Taxes due and payable for
the tax periods relating to such Tax Returns (whether or not shown on such Tax
Returns). All such previously-filed Tax Returns were complete and accurate in
all material respects when filed, and as of the date hereof no additional Tax
Liabilities for periods covered by such previously-filed Tax Returns have been
assessed on or proposed to Seller. With respect to each such Tax Return,
Schedule 2.21(b) specifies (A) each such Tax Return that (1) is currently being
audited by a Tax authority, or (2) as to which Seller has received a written
and/or oral notice from a Tax authority that such Tax authority intends to
commence an audit or examination of such Tax Return, and (B) each such Tax
Return as to which Seller has given its consent to waive or extend the
applicable statute of limitations for such Tax Return or the assessment of Taxes
required to be reported thereon. Seller has either delivered to Buyer or made
available for inspection by Buyer or its representatives or agents complete and
correct copies of all Tax audit reports and statements of Tax deficiencies with
respect to any delinquent Tax assessed against or agreed to by Seller for all
taxable periods commencing on or after January 1, 1993, for which audit reports
or statements of deficiencies have been received by Seller.
(c) Unpaid Taxes. The Pre-Acquisition Tax Liabilities of Seller (whether
imposed before or after Closing and whether imposed upon filing of a Tax Return
or as a result of an audit or examination) which are unpaid as of the close of
business on the Closing Date will not exceed the reserves for Tax Liabilities
(not including any reserve for deferred Taxes established to
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reflect timing differences between book and Tax income) as set forth in the
account for accrued taxes payable or similar account included in the Interim
Financial Statements.
(d) Tax Sharing Agreements. Seller is not a party to any tax-sharing or
tax-indemnity agreement and has not otherwise assumed by contract or otherwise
the Tax Liability of any other person.
(e) Section 481 Adjustments. Seller has not agreed, nor is it required
to make, any adjustment under Code Section 481(a) by reason of a change in
accounting method or otherwise.
(f) Foreign Tax Matters. Seller is not and has never been either (i) a
United States real property holding corporation as defined in Section 897(c)(2)
of the Code, or (ii) a foreign person as defined in Section 1445(f)(3) of the
Code.
(g) No Liens. None of the assets of Seller are subject to any liens in
respect of Taxes (other than for current Taxes not yet due and payable).
(h) No Closing Agreements. Seller has not executed or entered into any
closing agreement pursuant to Section 7121 of the Code, or any predecessor
provisions thereof, or any similar provision of state Tax law.
(i) Section 351. It is acknowledged that Buyer, Seller and the
Stockholders intend that the transfer of the Acquired Assets by Seller to Buyer
pursuant to this Agreement qualify as (i) a transfer of property to a controlled
corporation pursuant to the provisions of Code Section 351 and comparable
provisions of applicable state income tax law, and (ii) under Code Section 351
as part of a transfer by Seller and other persons transferring property to Buyer
who collectively will be in control (as defined in Section 368(c) of the Code)
of Buyer following such transfers. The information set forth on Schedule 2.21(i)
is accurate and may be used by Buyer for tax filing purposes.
2.22 ENVIRONMENTAL MATTERS.
Notwithstanding anything to the contrary contained in this Agreement:
(a) Seller and its operations comply and have at all times complied in
all material respects with all applicable laws, regulations and other
requirements of Governmental Entities or duties under common law relating to
toxic or hazardous substances, wastes, pollution or to the protection of health,
safety or the environment (collectively, "ENVIRONMENTAL LAWS") and have obtained
and maintained in effect all licenses, permits and other authorizations or
registrations (collectively "ENVIRONMENTAL PERMITS") required under all
Environmental Laws and are in material compliance with all such Environmental
Permits.
(b) Seller has not performed, failed to perform or suffered any act
which could reasonably be expected to give rise to, or has otherwise incurred,
material liability to any person (governmental or not) under the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601
et seq. ("CERCLA"), or any other Environmental Laws, nor has it received notice
of any such liability or any claim therefor.
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(c) Other than commonly used products in quantities that would not
reasonably be expected to present a material risk to health, safety or the
environment, no hazardous substance, hazardous waste, contaminant, pollutant or
toxic substance (as such terms are defined in or otherwise subject to any
applicable Environmental Law and collectively referred to herein as "HAZARDOUS
MATERIALS") has been released, placed, disposed of or otherwise come to be
located on, at, beneath or near any of the assets or properties owned or leased
by Seller at any time or any other property in material violation of any
Environmental Laws such that Seller could be subject to material liability under
any Environmental Laws.
(d) Seller has not exposed any employee or third party to any Hazardous
Materials or conditions that could subject it to any material liability under
any Environmental Laws.
(e) Seller does not now own or operate, and has never owned or operated,
aboveground or underground storage tanks.
(f) To the knowledge of Seller or any Stockholder, with respect to any
or all of the real properties leased at any time by Seller, there are no
asbestos-containing materials, urea formaldehyde insulation, polychlorinated
biphenyls or lead-based paints present at any such properties.
(g) There are no pending or, to the knowledge of Seller or any
Stockholder, threatened administrative, judicial or regulatory proceedings, or,
to the knowledge of Seller or any Stockholder, any threatened actions or claims,
or any consent decrees or other agreements in effect that relate to
environmental conditions in, on, under, about or related to Seller, its
operations or the real properties leased or owned by it at any time.
(h) Seller has delivered to Buyer copies of all written environmental
assessments, audits, studies and other environmental reports in its possession
or reasonably available to it relating to any of the current or former
businesses of Seller or its operations.
2.23 SECURITIES MATTERS.
(a) Seller and the Stockholders understand that (i) neither the Shares
(as defined in Schedule 1.4) nor any notes issued by Buyer, or the offer and
sale thereof have been registered or qualified under the Securities Act or any
state securities or "Blue Sky" laws, on the ground that the sale provided for in
this Agreement and the issuance of securities hereunder is exempt from
registration and qualification under Sections 4(2) and 18 of the Securities Act,
and (ii) Buyer's reliance on such exemptions is predicated on Seller's and the
Stockholders' representations set forth herein.
(b) Seller and the Stockholders acknowledge that an investment in Buyer
involves an extremely high degree of risk, lack of liquidity and substantial
restrictions on transferability and that Seller and the Stockholders may lose
their entire investment in the Shares and any notes issued by Buyer (the
"SECURITIES").
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(c) Buyer has made available to Seller and the Stockholders or Seller's
and the Stockholders' advisors the opportunity to obtain information to evaluate
the merits and risks of the investment in the Securities, and Seller and the
Stockholders have received all information requested from Buyer. Seller and the
Stockholders have had an opportunity to ask questions and receive answers from
Buyer regarding the terms and conditions of the offering of the Securities and
the business, properties, plans, prospects, and financial condition of Buyer and
to obtain additional information as Seller and the Stockholders have deemed
appropriate for purposes of investing in the Securities pursuant to this
Agreement.
(d) Seller and the Stockholders, personally or through advisors, have
expertise in evaluating and investing in private placement transactions of
securities of companies in a similar stage of development to Buyer and have
sufficient knowledge and experience in financial and business matters to assess
the relative merits and risks of an investment in Buyer. In connection with the
purchase of the Securities, Seller and the Stockholders have relied solely upon
independent investigations made by Seller and the Stockholders, and have
consulted their own investment advisors, counsel and accountants. Seller and the
Stockholders have adequate means of providing for current needs and personal
contingencies, and have no need for liquidity and can sustain a complete loss of
the investment in the Securities.
(e) The Securities to be issued by Buyer hereunder will be acquired for
the recipient's own account, for investment purposes, not as a nominee or agent,
and not with a view to or for sale in connection with any distribution of the
Securities in violation of applicable securities laws.
(f) Seller and the Stockholders understand that no federal or state
agency has passed upon the Securities or made any finding or determination as to
the fairness of the investment in the Securities.
(g) Seller and each Stockholder is an "Accredited Investor" as defined
in Rule 501(a) under the Securities Act and have each documented his, her or its
accredited status by delivery to Buyer of a completed questionnaire in the form
of Exhibit C attesting thereto (the "ACCREDITED INVESTOR QUESTIONNAIRE.")
(h) Neither Seller nor any Stockholder has received any general
solicitation or general advertising concerning the Securities, nor is Seller or
any Stockholder aware of any such solicitation or advertising.
2.24 BUYER AND THE CONSOLIDATION TRANSACTIONS.
(a) Seller and the Stockholders are aware that:
(i) Buyer has recently been organized and has no financial or
operating history.
(ii) There can be no assurance that any of the Consolidation
Transactions (as defined in Section 4.17) will occur, that Buyer will be
successful in accomplishing the purpose for which
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it was formed or that it will ever be profitable. No assurance can be given
regarding what companies, if any, will ultimately be acquired by Buyer. No
company is obligated to participate in the Consolidation Transactions unless a
written agreement to such effect is entered into by Buyer and such company.
(iii) No assurance can be given that an initial public offering
("IPO") of Buyer's securities will occur. If an IPO does occur, no assurances
can be given as to timing of the IPO, whether Seller or any Stockholder would be
able to participate, or the price at which any shares of Common Stock would be
sold.
(iv) No assurance can be given to the ultimate value of the
Common Stock or any Shares issued as part of the Purchase Price or the liquidity
thereof.
(v) All decisions regarding the Consolidation Transactions, any
IPO, and Buyer's management and operations will be made by Buyer's management,
and certain individuals involved in planning the Consolidation Transactions and
managing the business of Buyer will have the right to vote the Shares pursuant
to the Voting Agreement referred to in Section 6.2(c)(vii).
(b) Seller and the Stockholders acknowledge that no assurances have been
made to Seller or any Stockholder with respect to any of the foregoing and no
representations, oral or written, have been made to Seller or any Stockholder by
Buyer or any of its employees, representatives or agents concerning the
potential value of the Shares issued as part of the Purchase Price or the
prospects of Buyer, except as set forth herein.
2.25 MINUTE BOOKS AND STOCK RECORDS.
Seller has made available to Buyer true, complete and correct copies of:
(a) the minute books of Seller, containing all records required to be
set forth of all proceedings, consents, actions, and meetings of its
stockholders and the Board of Directors; and
(b) all stock record books of Seller setting forth all transfers of
capital stock.
2.26 BROKERS.
Except as set forth on Schedule 2.26, no broker, finder, investment
banker, or other person is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement,
based upon arrangements made by or on behalf of Seller or any of the
Stockholders.
2.27 SUMMARY OF CERTAIN CONSIDERATIONS.
Each Stockholder acknowledges receipt and understanding of the Summary
of Certain Considerations attached hereto as Exhibit D.
2.28 ACCURACY OF INFORMATION.
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None of the representations or warranties or information provided and to be
provided by Seller or any Stockholder to Buyer in this Agreement, the Disclosure
Schedule, schedules or exhibits hereto, or in any Accredited Investor
Questionnaire contains or will contain any untrue statement of a material fact
or omits or will omit to state any material fact necessary in order to make the
statements and facts contained herein or therein not false or misleading. The
descriptions set forth in the Disclosure Schedule are accurate descriptions of
the matters disclosed therein. Copies of all documents heretofore or hereafter
delivered or made available to Buyer pursuant hereto were or will be complete
and accurate records of such documents.
3. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants to Seller that:
3.1 ORGANIZATION AND CORPORATE AUTHORITY.
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement and the other Transaction
Documents to be executed and delivered by Buyer have been (or upon execution by
Buyer will have been) duly executed and delivered by Buyer, have been
effectively authorized by all necessary action of Buyer, corporate or otherwise,
and constitute (or upon execution will constitute) legal, valid and binding
obligations of Buyer, except as such enforceability may be limited by the
Bankruptcy Exception.
3.2 NO CONFLICT OR VIOLATION.
The execution, delivery and performance by Buyer of this Agreement and
the other Transaction Documents to be executed and delivered by Buyer and the
consummation of the transactions contemplated hereby and thereby do not and will
not: (i) violate or conflict with any provision of the charter documents or
bylaws of Buyer; or (ii) violate in any material respect any provision or
requirement of any domestic or foreign, national, state or local law, statute,
judgment, order, writ, injunction, decree, award, rule, or regulation of any
Governmental Entity applicable to Buyer.
3.3 CAPITALIZATION.
The authorized capital stock of Buyer consists of 240,000,000 shares of
common stock, par value $0.001 per share (the "COMMON STOCK") of which
200,000,000 are Series A Common Stock and 40,000,000 are Series B Common Stock,
and 10,000,000 shares of undesignated preferred stock. The Shares, when issued,
sold, and delivered in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly and validly issued, fully paid, and
nonassessable. Holders of Series B Common Stock are entitled to elect all the
directors in one of the Buyer's three (3) classes of directors, with the holders
of Series A Common Stock entitled to elect the remaining directors. In all other
respects the Series A and Series B Common Stock are identical.
3.4 NOTES.
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Any note to be delivered by Buyer as part of the Purchase Price, when
delivered in accordance with the terms of this Agreement, will be duly executed,
and will constitute a legal, valid and binding obligation of Buyer, except as
such enforceability may be limited by the Bankruptcy Exception.
3.5 LITIGATION.
Except as set forth on Schedule 3.5, there are no claims, actions,
suits, or proceedings of any nature pending or, to the knowledge of Buyer,
threatened by or against Buyer, the officers, directors, employees, agents of
Buyer, or any of their respective Affiliates involving, affecting or relating to
any assets, properties or operations of Buyer or the transactions contemplated
by this Agreement. Buyer is not subject to any order, writ, judgment, award,
injunction or decree of any Governmental Entity. From and after the Closing,
Buyer or its Affiliates may be subject to claims, actions, suits, or proceedings
including as a result of acquisitions by Buyer in the Consolidation
Transactions, and Buyer makes no representations or warranties about any such
claims, actions, suits or proceedings or the absence thereof.
3.6 BUYER'S OPERATIONS AND FINANCIAL CONDITION.
Since its date of incorporation, Buyer has had no operations except
operations in connection with effecting the Consolidation Transactions and
preparing for operation of its business after the Closing. Buyer has no material
tangible assets, and except as set forth on Schedule 3.6, Buyer has no material
liabilities or obligations for borrowed money or payment for services rendered
to Buyer. From and after the Closing, Buyer or its Affiliates may have
liabilities or obligations for money borrowed to effect the Consolidation
Transactions and as a result of acquisitions by Buyer in the Consolidation
Transactions, and Buyer makes no representations or warranties about any such
liabilities or obligations or the absence thereof.
3.7 ACCURACY OF INFORMATION.
None of the representations or warranties or information provided and to
be provided by Buyer to Seller in this Agreement, the schedules or exhibits
hereto, or in any of the other Transaction Documents delivered by Buyer contains
or will contain any untrue statement of a material fact or omits or will omit to
state any material fact necessary in order to make the statements and facts
contained herein or therein not false or misleading.
4. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
4.1 ACCESS.
Seller shall afford, to Buyer and Buyer's accountants, counsel and
representatives, full access during normal business hours throughout the period
prior to the Closing Date (or the earlier termination of this Agreement) to all
of the properties, books, Contracts and records of Seller (including, without
limitation, Seller's accounting records, the workpapers of Seller's independent
accountants, and all environmental studies, reports and other environmental
records)
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and, during such period, shall furnish promptly to Buyer all information
concerning Seller, the Business, Seller's properties, liabilities and personnel
as Buyer may reasonably request.
4.2 CONFIDENTIALITY.
For purposes hereof, Seller and the Stockholders will keep the matters
contemplated herein and all information provided by Buyer related to Buyer and
the Consolidation Transactions and potential participants therein, including
without limitation Deloitte & Touche LLP, confidential, and will not provide
information about such matters to any party or use such information except to
the extent necessary to effect the transactions contemplated hereby. Buyer will
keep the matters contemplated herein and all information provided by Seller and
the Stockholders related to Seller and the Business confidential, and will not
provide information about such matters to any party or use such information
except to the extent necessary to effect the transactions contemplated hereby.
Buyer and Seller shall each cause their respective Affiliates, officers,
directors, employees, agents, and advisors to keep confidential all information
received in connection with the transactions contemplated hereby. Seller and the
Stockholders acknowledge that Buyer may provide information about Seller and the
Business to other participants in the Consolidation Transactions to the extent
necessary to facilitate the Consolidation Transactions. If this Agreement
terminates without consummation of the Closing, Seller, the Stockholders and
Buyer shall, and shall cause their Affiliates to, each maintain the
confidentiality of any information obtained from the other in connection with
the transactions contemplated hereby, the Consolidation Transactions, and
Buyer's business plans (the "INFORMATION"), other than Information that (i) was
in the public domain before the date of this Agreement or subsequently came into
the public domain other than as a result of disclosure by the party to whom the
Information was delivered; or (ii) was lawfully received by a party from a third
party free of any obligation of confidence of or to such third party; or (iii)
was already in the possession of the party prior to receipt thereof, directly or
indirectly, from the other party; or (iv) is required to be disclosed in a
judicial or administrative proceeding after giving the other party as much
advance notice of the possibility of such disclosure as practicable so that the
other party may attempt to stop such disclosure; or (v) is subsequently and
independently developed by employees of the party to whom the Information was
delivered without reference to the Information. If this Agreement terminates
without consummation of the Closing, Buyer, on the one hand, and the
Stockholders and Seller, on the other, shall return to the other all material
containing or reflecting the Information provided by the other, shall not retain
any copies, extracts, or other reproductions thereof or derived therefrom, and
Buyer shall ensure the return of all such material from all other parties with
whom it has been shared, and shall thereafter refrain from using the Information
and shall maintain its confidentiality pursuant to this Agreement.
4.3 CERTAIN CHANGES AND CONDUCT OF BUSINESS.
(a) From and after the date of this Agreement and until the Closing (or
the earlier termination of this Agreement), Seller shall, and the Stockholders
shall cause Seller to, conduct Seller's business solely in the ordinary course
consistent with past practices. Without limiting the generality of the preceding
sentence, except as required or permitted pursuant to the terms hereof, Seller
shall not, and the Stockholders shall cause Seller not to:
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(i) make any material change in the conduct of its business and
operations or enter into any transaction other than in the ordinary course of
business consistent with past practices; or terminate or amend any Contract; or
enter into any new contract other than contracts of the type described in
Schedule 4.3(a)(i), in any case calling for payments to or by Seller in excess
of $20,000 over the life of the contract or series of related contracts, without
the prior written consent of Buyer, which may not be unreasonably withheld;
(ii) make any sale, assignment, transfer, lease, abandonment or
other conveyance of any of the assets of Seller or any part thereof, except
transactions required pursuant to existing contracts of Seller and dispositions
of inventory or worn out or obsolete equipment for fair or reasonable value in
the ordinary course of business consistent with past practices;
(iii) subject any of the assets of Seller, or any part thereof,
to any lien, security interest, charge, interest or other encumbrance, or suffer
such to be imposed other than such liens, security interests, charges, interests
or other encumbrances as may arise in the ordinary course of business consistent
with past practices;
(iv) acquire any assets or properties, or enter into any other
transaction, other than in the ordinary course of business consistent with past
practices;
(v) enter into any new (or amend any existing) Employee Plan,
program or arrangement or any employment, severance or consulting agreement, or
grant any increase in the compensation or benefits payable or to become payable
to (A) any officers or executive level employees, or (B) any employees other
than officers or executive level employees, except in accordance with
pre-existing contractual provisions applicable to such non-executive level
employees;
(vi) make or commit to make any capital expenditure in excess of
$25,000 or to invest, advance, loan, pledge or donate any monies to any
customers or other persons or entities or to make any similar commitments with
respect to outstanding bids or proposals;
(vii) sell, transfer, or lease any assets to, or enter into any
agreement or arrangement with, any Stockholder or any Affiliate of Seller or any
Stockholder;
(viii) guarantee any indebtedness for borrowed money or any other
obligation;
(ix) delay payment of payables or accelerate collection of
receivables relative to Seller's historical practices regarding the timing of
such payments and collections;
(x) declare or make any dividends, distributions or other
payments to equity holders, except as set forth on Schedule 4.3(a)(x);
(xi) except as necessary to comply with Section 4.3(b)(iv), make
any change in any revenue recognition or cost allocation practices or method of
accounting or accounting principle, method, estimate or practice (except for any
such change required by reason of a concurrent change in GAAP), or write down
the value of any assets or write-off as uncollectible any Accounts Receivable
except in the ordinary course of business consistent with past practices;
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(xii) settle, release or forgive any material claim or litigation
or waive any material right;
(xiii) take any other action that would cause any of the
representations and warranties made by Seller or any Stockholder herein not to
remain true and correct in all material respects, or that would cause any of the
conditions to the parties' respective obligations to consummate the transactions
contemplated hereby, as set forth in Sections 6.1, 6.2, or 6.3, not to be met;
or
(xiv) commit itself to do any of the foregoing.
(b) From and after the date hereof and until the Closing (or the earlier
termination of this Agreement), Seller shall, and the Stockholders shall cause
it to:
(i) maintain, in all material respects, the assets and properties
of Seller in accordance with present practices and in a condition suitable for
their current use;
(ii) file, when due or required, federal, state, foreign and
other tax returns and other reports required to be filed and pay when due all
taxes, assessments, fees and other charges lawfully levied or assessed against
it, unless the validity thereof is contested in good faith and by appropriate
proceedings diligently conducted;
(iii) continue to conduct the business of Seller in the ordinary
course consistent with past practices;
(iv) continue to maintain existing business relationships with
suppliers and customers except to the extent that such relationships are, at the
same time, judged in good faith to be non-beneficial;
(v) maintain and comply with all material Licenses;
(vi) comply with all material Environmental Laws, and upon
receipt of notice that there exists a violation of any Environmental Law,
immediately notify Buyer in writing; and
(vii) keep in full force and effect any insurance policies
comparable in amount and scope to coverage maintained by Seller (or on behalf of
it) on the date hereof.
4.4 RESTRICTIVE COVENANTS.
(a) Non-Competition. Seller and the Stockholders recognize that the
covenants of Seller and each Stockholder contained in this Section 4.4(a) (the
"COVENANT NOT TO COMPETE") are an essential part of this Agreement and the other
Transaction Documents and that but for the agreement of Seller and each
Stockholder to comply with such covenants Buyer would not enter into this
Agreement or the other Transaction Documents. Seller and the Stockholders
acknowledge and agree that the Covenant Not to Compete is necessary to protect
the Acquired Assets acquired by Buyer, including without limitation, goodwill
and the Proprietary Rights, and
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that irreparable harm and damage will be done to Buyer if Seller or any
Stockholder competes with Buyer in any way prohibited by the Covenant Not to
Compete. In addition, Seller and the Stockholders acknowledge that the Purchase
Price is consideration for professional relationships and market place
reputation developed by Seller and the Stockholders and Seller and the Covenant
Not to Compete is necessary for Buyer to receive the full benefit of this
Agreement. After the Closing, Seller and each Stockholder shall not
individually, or in concert, directly or indirectly:
(i) either on its, his, her or their own account or for any other person
or entity, solicit, induce, attempt to induce, interfere with, or endeavor to
cause (in each case in such a manner that could have a material adverse effect
on the financial condition, prospects or operation of the Business, the Acquired
Assets or Buyer or any of its Affiliates) any customer, which has utilized the
services of Seller at any time during the two (2) year period preceding the
Closing Date or with whom Seller was engaged in meaningful negotiations as of
the Closing Date (each, a "CUSTOMER"), to modify, amend, terminate or otherwise
alter the terms upon which it acquires services from Buyer or Buyer's
Affiliates, or to acquire from any party other than Buyer or its Affiliates any
services of the kind available from Buyer or its Affiliates;
(ii) engage or become interested in, as owner, employee, partner,
through equity ownership (not including up to a 1% passive equity interest in a
public company), investment of capital, lending of money or property, rendering
of services, or otherwise, either alone or in association with others, any
business competitive with the Business (including within the definition of the
Business, without limitation, any business of the type or types conducted by
Seller at any time during the two (2) year period preceding the Closing Date or
under development by Seller on the Closing Date);
(iii) take any material action intended to advance an interest of any
competitor of the Business, or encourage any other person to take such action;
or
(iv) take any material action intended to cause any Customer or
prospective customer to use the services or purchase the products of any
competitor of the Business.
This Covenant Not to Compete shall be limited to any county or any other
political subdivision of any state of the United States of America, or of any
other country in the world, where Seller generated revenue or established
goodwill at any time during the two (2) year period preceding the Closing Date.
This Covenant Not to Compete shall bind Seller and each Stockholder until
December 31, 2002, provided however, that if the employment of any Stockholder
is terminated by Buyer without Cause or by such Stockholder for Good Reason
(each as defined in such Stockholder's Employment Agreement delivered pursuant
to Section 6.3(c)(vi)), and if either (i) a registration statement for an
underwritten IPO of Buyer's equity securities has not been filed by December 31,
1999, or (ii) Buyer fails to consummate a public offering that results in a
public market of equity securities of Buyer on a national securities exchange or
the Nasdaq Stock Market by May 15, 2000, then after termination of such
Stockholder's employment with the Company or any of its Affiliates such
Stockholder will no longer be subject to the covenants contained in Section
4.4(a)(ii) and (iii) and the covenants in Section 4.4(a)(iv) will not be
breached by any general marketing efforts with which such Stockholder may be
involved that are not targeted specifically at any Customer. The parties
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hereto agree that the duration and area for which the Covenant Not to Compete
set forth in this Section 4.4(a) is to be effective are reasonable.
(b) Confidentiality. Seller and each Stockholder acknowledge their
intent that Seller shall fully and effectively convey to Buyer all Proprietary
Rights to be transferred to Buyer pursuant hereto. Accordingly, notwithstanding
the expiration of the Covenant Not to Compete set forth in Section 4.4(a),
Seller and each Stockholder shall at all times keep confidential and shall not
disclose to others any Proprietary Rights and shall not use or permit to be used
any Proprietary Rights for any purpose other than performance of obligations to
Buyer.
(c) Non-Diversion. For the period during which the Covenant Not to
Compete binds Seller and the Stockholders pursuant to Section 4.4(a), Seller and
each of the Stockholders shall not, and shall cause their Affiliates not to,
divert or attempt to divert or take advantage of or attempt to take advantage of
any actual or potential business or opportunities of Buyer or its Affiliates of
which Seller or any of the Stockholders become aware as the result of their
affiliation with the Business or their relationship with Buyer or its Affiliates
and which relate specifically to the Business, or any part thereof. This Section
4.4(c) is in addition to and not by way of limitation of any other duties the
Stockholders may have to Buyer or its Affiliates.
(d) Non-Recruitment. For the period during which the Covenant Not to
Compete binds Seller and the Stockholders pursuant to Section 4.4(a), Seller,
and each of the Stockholders shall not, and shall cause their Affiliates not to,
hire away, or cause any other person to hire away, any employee of or consultant
to Buyer or its Affiliates (including without limitation persons employed or
engaged by Seller before the Closing Date), or directly or indirectly entice or
solicit or seek to induce or influence any of such employees or consultants to
leave their employment or engagement with Buyer or its Affiliates.
(e) Remedies. The covenants contained in this Section 4.4 impose a
reasonable restraint on Seller and the Stockholders in light of the activities
and business of Seller and future plans of Buyer. Seller and each Stockholder
acknowledges that if they violate any of the covenants contained in this Section
4.4 (collectively, the "RESTRICTIVE COVENANTS"), it will be difficult to
determine the resulting damages to Buyer and, in addition to any other remedies
Buyer may have, Buyer shall be entitled to temporary injunctive relief without
being required to post a bond and permanent injunctive relief without the
necessity of proving actual damages. Seller and the Stockholders shall be liable
to pay all costs, including reasonable attorneys' fees and expenses, that Buyer
may incur in enforcing or defending, to any extent, any of the Restrictive
Covenants breached by Seller, and each Stockholder shall be severally liable to
pay all costs, including reasonable attorneys' fees and expenses, that Buyer may
incur in enforcing or defending, to any extent, any of the Restricted Covenants
breached by such Stockholder, whether or not litigation is actually commenced
and including litigation of any appeal defended by Buyer where such party
succeeds in enforcing any of the Restrictive Covenants. Buyer may elect to seek
one or more remedies at its discretion on a case by case basis. Failure to seek
any or all remedies in one case shall not restrict Buyer from seeking any
remedies in another situation. Such action by Buyer shall not constitute a
waiver of any of its rights.
(f) Severability and Modification of any Unenforceable Covenant. Each of
the Restrictive Covenants will be read and interpreted with every reasonable
inference given to its
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enforceability. However, if any term, provision or condition of the Restrictive
Covenants is held by a court or arbitrator to be invalid, void or unenforceable,
the remainder of the provisions thereof shall remain in full force and effect
and shall in no way be affected, impaired or invalidated. If a court or
arbitrator should determine any of the Restrictive Covenants are unenforceable
because of over-breadth, then the court or arbitrator shall modify such covenant
so as to make it enforceable to the fullest extent the court or arbitrator deems
reasonable and enforceable under the prevailing circumstances. The Covenant Not
to Compete shall be deemed to be a series of separate covenants, one for each
and every county of each and every state of the United States of America and
each and every political subdivision of each and every country outside the
United States of America where the Covenant Not to Compete is intended to be
effective.
4.5 SECURITIES RESTRICTIONS.
(a) In addition to the contractual restrictions on transfer set forth in
the Stockholder Agreement referred to in Section 6.2(c)(vi), the Shares (or
interests therein) cannot be offered, sold or transferred unless the Shares are
registered and qualified under the Securities Act and applicable state
securities laws or exemptions from such registration and qualification
requirements are available, or such registration and qualification requirements
are inapplicable, as reflected in an opinion of counsel to any transferring
stockholders in form and substance reasonably satisfactory to Buyer. In the
absence of an effective registration statement covering the Shares or an
available exemption from registration under the Securities Act, the Shares must
be held indefinitely, and may not be sold pursuant to Rule 144 promulgated under
the Securities Act unless all of the conditions of that rule are met.
(b) The Certificates will bear a legend to the effect set forth below,
and appropriate stop transfer instructions against the Shares will be placed
with any transfer agent of Buyer to ensure compliance with the restrictions set
forth herein.
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAW AND MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED,
PLEDGED, OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT AND
ANY APPLICABLE STATE SECURITIES LAWS, OR UNLESS PROFITSOURCE CORPORATION
HAS RECEIVED AN OPINION OF COUNSEL TO THE HOLDER OF THE SHARES OR OTHER
EVIDENCE, SATISFACTORY TO PROFITSOURCE CORPORATION AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED."
(c) Each recipient of Shares or interests therein shall, as a condition
to transfer of any Shares or interests therein, cause the transferee to enter
into the Stockholder Agreement described in Section 6.2(e)(vi) and the Voting
Agreement described in Section 6.2(e)(vii), provided that, with respect to each
such agreement, this requirement will not apply to transfers made after the
agreement has terminated.
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(d) In connection with any underwritten public offering of securities of
Buyer or any of its Affiliates within three (3) years of the Closing Date, if
the managing underwriter believes that it is appropriate in connection with the
offering to limit public sales of such securities by Buyer's stockholders, the
Stockholders will agree to the managing underwriter's standard form of "lock up"
agreement prohibiting transfers of Common Stock (other than shares included in
the offering) for such period as may be required by the managing underwriter not
to exceed twenty (20) days prior to, and one hundred and eighty (180) days
after, the effective date of the registration statement for such offering,
provided however, that (i) such lock up provision may not be invoked more than
once in any 365 day period, (ii) such lock up provision will be contingent upon
the officers and directors of the registrant entering into similar lock up
agreements, and (iii) no Stockholder will be required to comply with this lock
up provision if any other stockholder owning more shares of Common Stock than
such Stockholder and who is subject to a contractual lock up provision similar
to this one has been released from such lock up obligation.
4.6 REGISTRATION.
(a) Neither Seller nor any Stockholder will have any rights to demand
registration of any of the Shares, or to participate in any registration
undertaken by Buyer except as set forth in this Section 4.6. If Buyer files a
registration statement with the Securities and Exchange Commission for an
underwritten IPO of its equity securities or any subsequent underwritten public
offering within twenty-four (24) months of the closing of the IPO (not including
a registration statement filed in connection with an acquisition or employee
benefit plan), and if the managing underwriter of such offering believes that
the market will accommodate selling stockholders in the offering, then Seller,
each Stockholder and each Unit Holder (as defined in Section 4.23), in the
aggregate, shall have the right, subject to the limitations set forth in this
Section 4.6(a), to include in such registration statement or statements and
offering or offerings Shares and other Common Stock owned by Seller and such
Stockholders and Unit Holders. Other stockholders (including but not limited to
stockholders who acquired Common Stock in the Consolidation Transactions and
stockholders who acquired Common Stock in connection with the formation, or work
on behalf of, Buyer) will have rights to include shares of Common Stock in any
such offering, and if the aggregate amount of shares that all stockholders with
such rights (collectively, the "SELLING STOCKHOLDERS") desire to include exceeds
the number of shares of Common Stock that can be sold by all Selling
Stockholders, then all Selling Stockholders desiring to sell in any such
offering will participate pro-rata on the basis of the relative numbers of
shares of Common Stock eligible for inclusion that they originally sought to
include. However, notwithstanding the foregoing, no Selling Stockholder or Unit
Holder will be permitted to include in any such registration and offering (i)
any Shares subject to performance-related restrictions at the time of filing of
the registration statement for such offering, or (ii) more than, in the
aggregate for all such registrations and offerings, half of the shares of Common
Stock held by such Selling Stockholder or Unit Holder as of the date hereof.
Furthermore, in no case will Seller, the Stockholders or any Unit Holders be
permitted to include in all such registrations and offerings, in the aggregate,
more than the number of shares listed on Schedule 4.6 under the item "Maximum
IPO Shares" (such shares will be allocated among Seller, each of the
Stockholders and each of the Unit Holders hereunder desiring to participate in
any such registration and offering ratably on the basis of their relative
ownership of Shares and other Common Stock).
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(b) If any Stockholder acting pursuant to this Section 4.6 includes any
securities in any registration of Buyer, Buyer will agree to indemnify such
Stockholder from and against any claims, costs and liabilities incurred by such
Stockholder as a result of any untrue, or alleged untrue, statement of a
material fact contained in any registration statement, preliminary prospectus or
prospectus (as amended or supplemented if Buyer shall have furnished any
amendments or supplements thereto) or caused by any omission, or alleged
omission, to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
claims, costs or liabilities are caused by any untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
information furnished in writing to Buyer by Stockholder expressly for use
therein for which the Stockholder will be responsible.
(c) Shares of Common Stock may only be included in a registration and
offering pursuant to this Section 4.6 pursuant to the underwriting agreement
negotiated between Buyer and the underwriters, and Selling Stockholders must
enter into the underwriting agreement with respect to any shares held by them to
be included in the registration and offering. Each Selling Stockholder shall pay
(i) all underwriting discounts and commissions applicable to such Selling
Stockholder's sale of shares of Common Stock, (ii) such Selling Stockholder's
ratable share (based on the relative number of shares of Common Stock included
in the offering) of any fees and disbursements of a single counsel for all
Selling Stockholders, which counsel shall be selected by the two Selling
Stockholders (or affiliated stockholder groups) selling the most shares of
Common Stock in the offering, and (iii) the fees and costs of any separate
counsel retained by such Selling Stockholder alone.
(d) At all times that equity securities of Buyer are registered pursuant
to the Securities Exchange Act of 1934, as amended, Buyer shall use its best
efforts to fulfill all conditions applicable to a registrant as are necessary to
enable selling security holders of Buyer to make sales pursuant to Rule 144
under the Securities Act.
4.7 TAXES.
(a) Certain Operating Conventions and Procedures.
(i) For all Tax purposes the Closing shall be deemed to occur as of the
close of Seller's business activities on the Closing Date, and all of Seller's
income, gains and other Tax items attributable to the Closing Date shall be
included and reported by Seller in Tax Returns of Seller to be filed following
the Closing and that all Taxes attributable to Seller's income, gains or other
taxable items for the Closing Date shall be paid by Seller.
(ii) The allocation of any Tax Liability between the portion of any
Straddle Period ending on the Closing Date, and the portion of such Straddle
Period after such date shall be made by means of a closing of the books and
records of Seller as of the close of business on the Closing Date as if a
taxable period ended as of the close of such date; provided, however, that
exemptions, allowances or deductions that are calculated on an annual basis
(including, but not limited to, depreciation and amortization deductions) shall
be allocated between the period
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ending on and inclusive of the Closing Date and the period following the Closing
Date in the proportion which the number of days in each such period bears to the
total number of days in the Straddle Period. With respect to Straddle Periods,
(A) Seller shall be responsible for and shall pay all Taxes attributable to the
business, assets, employees and activities of Seller (including but not limited
to all activities related to the Acquired Assets) through to and inclusive of
the Closing Date and all Taxes attributable to the business, assets, employees
and activities of Seller after the Closing Date, and (B) Buyer shall be
responsible for and shall pay all Taxes attributable to the Acquired Assets and
Buyer's activities related thereto after the Closing Date (hereinafter the
liability for Taxes described in this clause (B) shall be referred to as "BUYER
TAX LIABILITIES").
(iii) Without limitation in any manner on the foregoing, all Taxes
attributable to the transfer of the Acquired Assets by Seller to Buyer as
contemplated by this Agreement, including but not limited to income, sales and
transfer Taxes, shall be the responsibility of and shall be paid by Seller.
(b) Filing of Tax Returns; Payment of Taxes.
(i) Seller shall prepare and file, or cause to be prepared and filed,
all Tax Returns of Seller required to be filed (after giving effect to any valid
extension of time in which to make such filings) prior to the Closing Date and
shall pay or cause to be paid, on or before the applicable due date(s) therefor,
all Taxes shown to be due and payable on such Tax Returns.
(ii) (A) Seller shall prepare or cause to be prepared, for
Pre-Acquisition Taxable Periods and for any Straddle Periods, all Tax Returns
required to be filed by Seller and (after giving effect to any valid extensions)
which are not required to be filed on or prior to the Closing Date. The books
and records of Seller will be maintained, and the federal, state and other
income Tax Returns of Seller will be filed, so as to properly reflect the
operations of Seller through the end of the Closing Date.
(B) Seller shall file or cause to be filed all Tax Returns
to which this Section 4.7(b)(ii) applies and shall pay or cause to be paid, on
or before the applicable due date(s) therefor, all Taxes shown on such Tax
Returns to be due and payable.
(C) On or before the date that is ten (10) days prior to
Seller's filing of a Tax Return for a Straddle Period with respect to which
Buyer is obligated to pay a Buyer Tax Liability in accordance with the
provisions of Section 4.7(a), Seller shall furnish a copy of such Tax return to
Buyer together with a notice (the "BUYER TAX LIABILITY Notice") setting forth
Seller's calculation of the Buyer Tax Liability for such Straddle Period and
specifying such information as may be reasonably necessary for Buyer to review
the accuracy of such calculation. If Buyer has no dispute with respect to
Seller's calculation of the Buyer Tax Liability for such Straddle Period, Buyer
shall pay to Seller the full amount of such Buyer Tax Liability within five (5)
days following Buyer's receipt of such Buyer Tax Liability Notice. If Buyer
disputes in good faith its obligation hereunder to pay all or any portion of the
Buyer Tax Liability as calculated by Seller, Buyer shall pay the undisputed
portion (if any) to Seller within five (5) days of Buyer's receipt of the Buyer
Tax Liability Notice, and the dispute with respect to the balance shall be
resolved pursuant to arbitration in accordance with Section 7.13, provided,
however, nothing herein shall be deemed to preclude Buyer from paying the full
amount of the
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Buyer Tax Liability as calculated by Seller and thereafter making a claim for
restitution of all or any portion thereof pursuant to the arbitration provisions
of Section 7.13.
(c) Tax Proceedings.
(i) Seller shall, promptly upon receipt of notice thereof by Seller,
notify Buyer in writing of any communication with respect to any pending or
threatened Tax Proceeding in connection with a Pre-Acquisition Tax Liability (or
any issue related thereto). Seller shall include with such notification a true,
correct and complete copy of any written communication, and an accurate and
complete written summary of any oral communication, so received by Seller.
(ii) Seller shall have responsibility and authority to represent the
interests of Seller in any Tax Proceeding relating to Pre-Acquisition Taxable
Periods, Straddle Periods or otherwise with respect to Pre-Acquisition Tax
Liabilities and to employ counsel of its choice and at its expense; provided,
however, that Buyer shall be permitted to participate in any such Tax
Proceedings and all hearings related thereto; and provided further, that,
without Buyer's prior written consent, Seller shall not agree to settle any such
Tax Proceeding and/or any issues arising therein if such settlement is likely to
result in an increase in Buyer Tax Liabilities or otherwise have an adverse
effect on the Tax consequences of Buyer's use of the Acquired Assets following
the Closing.
(d) Seller Costs; Maintenance and Retention of Records. Seller shall pay
any reasonable legal, accounting and other fees and out-of-pocket expenses
incurred in connection with (i) the preparation of any Tax Return by Seller
pursuant to Section 4.7(b) and (ii) the conduct of any Tax Proceeding described
in Section 4.7(c), but not including Buyer's costs and expenses attributable to
its voluntary participation therein. Seller shall retain or cause to be retained
all such Tax Returns, together with all schedules, workpapers and all material
records or other documents relating thereto, until the expiration of the statute
of limitations (including any waivers or extensions thereof) with respect to the
taxable periods to which such Tax Returns relate. Seller shall notify Buyer in
writing of any waivers or extensions of any statute of limitations that may
affect the period for which the foregoing records or other documents must be
retained.
(e) Section 351. For all federal and state income tax purposes, Seller
and Buyer shall (i) treat and report the transfer of the Acquired Assets in a
manner consistent with its qualification as a transfer of property to a
controlled corporation pursuant to the provisions of Code Section 351 and
comparable provisions of state income tax law, and (ii) file such Tax returns
and Tax information reports related to the transfer as may be required or
otherwise appropriate under the Tax laws and regulations applicable to transfers
of property pursuant to Code Section 351.
(f) Survival. Notwithstanding any other provision of this Agreement, the
covenants set forth in this Section 4.7 shall survive until the expiration of
the respective statutes of limitations applicable to the periods to which the
Taxes referred to herein relate.
4.8 ACCESS TO RECORDS AND FILES.
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Seller shall have the right for a period of three (3) years following the
Closing Date to have reasonable access to such books, records and accounts,
correspondence, employment records and other similar information as are
transferred to Buyer pursuant to the terms of this Agreement for any proper
purpose. Buyer shall have the right for a period of three (3) years following
the Closing Date to have reasonable access to those books, records and accounts,
correspondence, and other records which are retained by Seller pursuant to the
terms of this Agreement to the extent that any of the foregoing relate to the
Business or the Acquired Assets and to the extent that such access is required
for any lawful purpose.
4.9 COOPERATION IN LITIGATION.
Each party will fully cooperate with the others in the defense or
prosecution of any litigation or proceeding already instituted or which may be
instituted hereafter against or by such party relating to or arising out of the
conduct of the Business prior to or after the Closing Date (other than
litigation between Buyer and/or its Affiliates or assignees, on the one hand,
and Seller or any Stockholder and/or their Affiliates or assignees, on the
other, arising out of the transactions contemplated by this Agreement). Subject
to the provisions hereof regarding payment by each party of its costs and
payment of attorneys' fees and costs, the party requesting such cooperation
shall pay the out-of-pocket expenses (including reasonable legal fees and
disbursements) of the party providing such cooperation and of its officers,
directors, employees and agents reasonably incurred in connection with providing
such cooperation, but shall not be responsible to reimburse the party providing
such cooperation for such party's time spent in such cooperation or the salaries
or costs of fringe benefits or other similar expenses paid by the party
providing such cooperation to its officers, directors, employees and agents
while assisting in the defense or prosecution of any such litigation or
proceeding.
4.10 EMPLOYMENT.
(a) Except as set forth herein, Buyer shall not assume any liabilities
or obligations of Seller to any current or former employee of Seller. Buyer
shall not have any liability or obligation to or in respect of any employee of
Seller, including, without limitation, any liability or obligation (i) to employ
or engage any such employee, (ii) arising from such employee's dismissal by
Seller, or any notice and/or payment in lieu of notice required by applicable
law in connection with such dismissal, or (iii) in respect of any compensation,
tenure, seniority, benefit or welfare plan or arrangement of any kind.
(b) Schedule 4.10 lists of all those employees of Seller to whom Buyer
intends to offer employment or engagement. Buyer shall offer employment or
engagement to all of the persons listed on Schedule 4.10 at such salaries, wages
or compensation rates and with such medical insurance and other benefits as
Buyer may determine. At any time after the Closing, Buyer may, but is in no way
obligated to, offer employment or similar engagements to other employees of
Seller, notwithstanding that such employees are not listed on Schedule 4.10.
(c) If any of the employees of Seller elect to become employed or
engaged by Buyer, the employment or relationship between such employee and
Seller shall first terminate, and such
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employee shall execute an Employee General Release Agreement substantially in
the form of Exhibit E (the "EMPLOYEE GENERAL RELEASE") and shall then be
employed or engaged by Buyer according to Buyer's own policies and procedures.
Buyer shall not be liable for any severance payments asserted against Seller, or
other liability or obligation to any employees or former employees of Seller who
do not accept such offers of employment or similar engagements from Buyer.
(d) Employee Plans.
(i) On or before Closing, Seller shall take all actions as may be
necessary or appropriate to cause Buyer to be the sponsor of the DHR
International, Inc. Retirement Savings Plan (the "401(k) PLAN") and for Seller
to cease to be the sponsor of the 401(k) Plan, in each case subject to Closing
and effective on Closing. On or before Closing, Seller shall take all actions
necessary or appropriate to cause the health and welfare plans and corresponding
insurance policies listed on Schedule 4.10(d) to be assigned to Buyer, effective
on Closing. Buyer shall recognize for purposes of its initial paid time off
policies the accrued but unused paid time off for each employee of Seller who
becomes an employee of Buyer, in an amount not to exceed the lesser of (x) the
maximum paid time off each employee of Seller is eligible to earn in one year
under Seller's current paid time off policies applicable to each such employee
or (y) such employee's actual accrued but unused paid time off, to the extent
such time is accrued on the Financial Statements of Seller prior to Closing.
Nothing in this subsection (i) shall prevent Buyer from amending or terminating
any Employee Plan at any time.
(ii) Except as provided in subsection (i) above, Buyer shall not
assume any Employee Plan and Seller shall retain and be responsible for any
cost, expense, liability, damage or obligation relating to any Employee Plan,
whether arising before, on or after Closing.
4.11 CHANGE OF NAME.
Promptly after the Closing Date, Seller will, and the Stockholders will
cause Seller to, change its name to "Hoffmann Investor Company", or such other
name not confusingly similar with "DHR International, Inc." as may be acceptable
to Buyer.
4.12 BULK SALES LAWS.
Seller shall comply with the provisions of any applicable bulk sales
laws, and shall be responsible and liable for the costs of any non-compliance,
irrespective of which party is obligated under such laws.
4.13 STOCKHOLDER REPRESENTATIVE.
The Stockholders shall at all times maintain a representative (the
"STOCKHOLDER REPRESENTATIVE") for purposes of taking certain actions and giving
certain consents on behalf of the Stockholders as specified herein. The
Stockholder Representative will be David Hoffmann unless and until the
Stockholders, each having voting power in proportion to such Stockholder's
ownership of voting securities of Seller, elect his replacement by majority vote
of such shares and notify Buyer thereof. Actions taken, consents given and
representations made by the Stockholder Representative on behalf of the
Stockholders pursuant hereto shall be binding upon
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the Stockholders. Before the Closing, the Stockholder Representative is
authorized by the Stockholders to take any action on behalf of the Stockholders
to facilitate the transactions contemplated hereby which such Stockholder
Representative is directed to take by Seller acting through a majority of the
members of the Board of Directors in office prior to the Closing, including,
without limitation, amending this Agreement, and executing documents or
instruments. After the Closing, the Stockholder Representative is authorized by
the Stockholders to take any action on behalf of the Stockholders to facilitate
or administer the transactions contemplated hereby as the Stockholder
Representative deems appropriate.
4.14 SUPPLEMENTAL DISCLOSURE.
At the Closing, Seller shall supplement or amend each of the schedules
hereto with respect to any matter hereafter arising which, if existing or
occurring at or prior to the date hereof, would have been required to be set
forth or listed in the schedules or which is necessary to complete or correct
any information in the schedules.
4.15 HSR.
Seller and Buyer shall cooperate in preparing and delivering to the
Department of Justice and the Federal Trade Commission notification of the
transactions contemplated hereby pursuant to, and shall use their commercially
reasonable best efforts to obtain early termination of the waiting period under,
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR ACT"), if
applicable. Seller and Buyer shall each pay half of all filing fees payable
under the HSR Act in connection with the transactions contemplated hereby, and
each of Seller and Buyer shall pay its own costs incurred in preparation of all
reports and notifications required under the HSR Act.
4.16 COMPETING PROPOSALS.
(a) Neither Seller nor any Stockholder shall, directly or indirectly,
initiate, solicit, encourage or participate in any discussions or negotiations
with, or provide any nonpublic information to, any person or entity concerning
any potential offer (other than as described herein) to acquire Seller, the
Business or any assets thereof or interests therein, or any other transaction or
arrangement that would interfere with the transactions contemplated hereby (a
"COMPETING PROPOSAL").
(b) Seller and the Stockholders shall promptly communicate to Buyer the
existence or occurrence and terms of any Competing Proposal or contact related
thereto which the Stockholders or Seller or any of its employees, directors, or
agents may receive in respect of any such proposed transaction and the identity
of the person, entity or group from whom such proposal or contact was received.
(c) Seller and the Stockholders shall not transfer or hypothecate the
Business, the Acquired Assets or any interests therein except to Buyer, or enter
into any agreement with any person other than Buyer in connection with any of
the foregoing.
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4.17 CONSOLIDATION TRANSACTIONS.
Concurrent with the acquisition of the Acquired Assets, Buyer is
acquiring in a series of transactions various other companies engaged in the
business of cost reduction, cost recovery and profit enhancement services by
means of mergers into Buyer, or acquisitions by Buyer of all or substantially
all of the assets or stock or other equity interests of such companies
(collectively, the "CONSOLIDATION TRANSACTIONS"). Seller and the Stockholders
acknowledge that as a result of the complexity of the transactions contemplated
hereby and the Consolidation Transactions, the Closing contemplated hereby and
the closing of the Consolidation Transactions must be concurrent at a time
designated by Buyer. Accordingly, Seller and the Stockholders shall at any time
upon or after execution of this Agreement, but prior to the Closing Date (i)
provide any outstanding documentation required to effect the Closing pursuant to
this Agreement in escrow pending release upon authorization by Seller at the
Closing, (ii) complete performance of their respective obligations hereunder and
under the other Transaction Documents to be performed by the Closing, and (iii)
update the schedules hereto and any other documentation or information provided
to Buyer during the course of this transaction such that all such disclosures
shall be accurate and current as of the Closing Date.
4.18 COLLECTION OF ACCOUNTS RECEIVABLE.
(a) Promptly after the Closing, Seller shall prepare and deliver to
Buyer a list of all Accounts Receivable outstanding on the Closing Date. For a
period of 120 days after the Closing Date (the "COLLECTION PERIOD") Buyer shall
use its reasonable best efforts to collect the Accounts Receivable. Buyer may,
but shall not be obligated to, use a collection agency or commence legal actions
in connection with such collection efforts. Promptly after the expiration of the
Collection Period, Buyer shall provide written notice to Seller of those
Accounts Receivable which have not been collected as of the end of the
Collection Period to the extent that the aggregate amount unpaid exceeds the
allowance for doubtful accounts specified in Schedule 1.5. Within ten (10) days
of receipt of such notice from Buyer, Seller shall purchase (without recourse to
Buyer) such designated Accounts Receivable then remaining unpaid for a purchase
price thereof equal to the face amount thereof, less any amounts collected
thereunder by Buyer. Buyer may in its discretion cause Seller to pay the
purchase price for such Accounts Receivable through offset of any payment
obligations of Buyer or its Affiliates to Seller or any Stockholder.
(b) Upon the repurchase by Seller of any unpaid Accounts Receivable
pursuant to this Section 4.18, (i) Buyer shall promptly deliver to Seller any
tangible evidence of such Accounts Receivable then in the possession of Buyer or
under its control, and (ii) Seller shall be entitled to take any and all actions
which it may deem necessary or desirable in order to collect such unpaid
Accounts Receivable. Buyer will, from time to time after such repurchase,
execute and deliver to Seller such instruments and other documents as Seller may
reasonably request to assist Seller in its collection efforts.
(c) If any payment received by Buyer during the Collection Period is
remitted by a customer which is indebted under both Accounts Receivable and an
account receivable arising
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out of a sale after the Closing Date (a "NEW RECEIVABLE"), such payments shall
first be applied to the New Receivable due from such customer and the balance
remaining after payment in full of all New Receivables due from such customer
shall be applied to the Accounts Receivable unless the payment is designated by
the payor as applicable to the Accounts Receivable, in which case such payment
will be first applied to the Accounts Receivable to the extent such application
would be consistent with Seller's historical account collection practices.
(d) Seller hereby authorizes Buyer to open any and all mail addressed to
Seller (if delivered to Buyer) received on or after the Closing Date and hereby
grants to Buyer a power of attorney to endorse and cash any checks or
instruments made payable or endorsed to Seller or its order and received by
Buyer.
(e) Seller shall forward promptly to Buyer any monies, checks or
instruments received by Seller after the Closing with respect to the Accounts
Receivable or New Receivables, except with respect to those Accounts Receivable
which are repurchased by Seller pursuant to Section 4.18(a).
4.19 BONUS PLAN.
If Buyer does not close the IPO of its equity securities by June 30,
1999, Buyer will implement a cash bonus plan designed to reward employees on the
basis of the performance of the divisions or subsidiaries of Buyer in which they
work. Amounts payable under, and other terms of, any such plan will be subject
to restrictions imposed by Buyer's lenders, Buyer's capital investment
requirements, and preservation of adequate working capital.
4.20 BEST EFFORTS.
Upon the terms and subject to the conditions of this Agreement, each of
the parties hereto shall use its best efforts (other than the payment of money
unreimbursed by the other party) to take, or cause to be taken, all actions, and
to do, or cause to be done, all things necessary, proper or advisable consistent
with applicable law to cause the fulfillment of the conditions to Closing set
forth herein and to consummate and make effective in the most expeditious manner
practicable the transactions contemplated hereby.
4.21 FURTHER ASSURANCES.
Upon the reasonable request of a party or parties hereto at any time
after the Closing Date, the other party or parties shall forthwith execute and
deliver such further instruments of assignment, transfer, conveyance,
endorsement, direction or authorization and other documents as the requesting
party or parties or its or their counsel may reasonably request in order to
perfect title of Buyer and its successors and assigns to the Acquired Assets or
otherwise to effectuate the purposes of this Agreement.
4.22 NOTICE OF BREACH.
At all times before the Closing, and thereafter until the second
anniversary of the Closing Date, each of the parties hereto shall promptly give
written notice with particularity of any breach or inaccuracy of any
representation, warranty, agreement or covenant of such party
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contained herein or in any other Transaction Document to the parties to whom or
which such representation, warranty or covenant was made.
4.23 SHARE TRANSFER.
The Seller has entered into repurchase agreements (the "REPURCHASE
AGREEMENTS") with those individuals (the "UNIT HOLDERS") set forth on Schedule
4.23. Pursuant to the Repurchase Agreements, the Seller has acquired any and all
of the outstanding equity rights in the Seller that the Unit Holders held or may
have held. Notwithstanding anything to the contrary contained herein, the Buyer
consents to and acknowledges that the Seller may transfer Shares to the Unit
Holders in the amounts set forth on Schedule 4.23, provided that each of the
Unit Holders (i) is an Accredited Investor, (ii) has executed and delivered to
the Buyer a Stockholder Agreement, a Voting Agreement, and a Stock Power in form
and substance satisfactory to the Buyer, (iii) has received and acknowledged the
Unit Holder's understanding of the Summary of Certain Considerations attached
hereto as Exhibit D and (iv) has executed and delivered a release in form and
substance satisfactory to the Buyer, pursuant to which the Unit Holder releases
the Buyer of any claims against, or liabilities or obligations of Buyer, Seller
or Stockholder against the Unit Holder and any claim, or liability or obligation
that may arise pursuant to the Repurchase Agreements.
5. SURVIVAL; INDEMNIFICATION.
5.1 SURVIVAL.
The representations and warranties made in this Agreement or in any
exhibit, schedule, or any other Transaction Document or certificate shall
survive any investigation made by any party hereto and the Closing of the
transactions contemplated hereby until the second anniversary of the Closing
Date, except those representations and warranties contained in (i) Sections 2.21
(Taxes) and 2.26 (Brokers), which will survive until the expiration (including
extensions) of the applicable statute of limitations; and (ii) Section 2.4
(Acquired Assets), which will survive indefinitely. As to any matter or claim
which is based upon fraud by the indemnifying party, the representations and
warranties set forth in this Agreement shall expire only upon expiration of the
applicable statute of limitations. No party will be liable to another under any
warranty or representation after the applicable expiration of such warranty or
representation; provided however, if a claim or notice is given under this
Article 5 with respect to any representation or warranty prior to the applicable
expiration date, such claim may be pursued to resolution notwithstanding
expiration of the representation or warranty under which the claim was brought.
Any investigations made by or on behalf of any of the parties prior to the date
hereof shall not affect any of the parties' obligations hereunder. Completion of
the transactions contemplated hereby shall not be deemed or construed to be a
waiver of any right or remedy of any of the parties.
5.2 INDEMNIFICATION BY SELLER AND THE STOCKHOLDERS.
Subject to the limits set forth in this Article 5, Seller, the
Stockholders and their successors and assigns shall jointly and severally
indemnify, defend, reimburse and hold
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harmless Buyer and its Affiliates and their successors and assigns, and the
officers, directors, employees and agents of any of them, from and against any
and all claims, losses, damages, liabilities, obligations, assessments,
penalties and interest, demands, actions and expenses, whether direct or
indirect, known or unknown, absolute or contingent (including, without
limitation, settlement costs and any legal, accounting and other expenses for
investigating or defending any actions or threatened actions) ("Losses")
reasonably incurred by any such indemnitee, arising out of or in connection with
any of the following:
(a) the operations of Seller and the ownership or operation of the
Excluded Assets at any time before or after the Closing;
(b) the ownership or operation of the Acquired Assets or Business before
the Closing other than obligations specifically assumed by Buyer;
(c) any untruth, or inaccuracy of any representation warranty or
certification made by Seller or any Stockholder in this Agreement or any other
Transaction Document;
(d) the breach of any covenant, agreement or obligation of Seller or any
Stockholder contained in this Agreement or any other Transaction Document;
(e) any claims against, or liabilities or obligations of, Seller not
specifically assumed by Buyer pursuant to this Agreement; and
(f) any claims by, or liabilities or obligations to any Unit Holder or
any claims, liabilities or obligations that may arise pursuant to the Repurchase
Agreements.
5.3 INDEMNIFICATION BY BUYER.
Subject to the limits set forth in this Article 5, Buyer and its
successors and assigns, shall indemnify, defend, reimburse and hold harmless
Seller and its successors and assigns and their officers, directors, employees
and agents from and against any and all Losses reasonably incurred by any such
indemnitee arising out of or in connection with any of the following:
(a) the ownership and operation of the Acquired Assets and the Business
after the Closing (except that to the extent not prohibited by applicable law,
Buyer and its successors and assigns will not be required to indemnify, defend,
reimburse or hold harmless any Stockholder in respect of any Losses arising as a
result of acts or omissions of that Stockholder, including without limitation in
such Stockholder's capacity as an employee of or consultant to Buyer or its
Affiliates after the Closing);
(b) any untruth or inaccuracy of any representation, warranty or
certification made by Buyer in this Agreement or any other Transaction Document;
(c) the breach of any covenant, agreement or obligation of Buyer
contained in this Agreement or any other Transaction Document; and
(d) any claims against, or liabilities or obligations of, Seller
specifically assumed by Buyer pursuant to this Agreement; and
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5.4 INDEMNIFICATION PROCEDURE.
(a) Whenever any claim shall arise for indemnification hereunder (a
"CLAIM"), the party entitled to indemnification (the "INDEMNITEE") shall
promptly give written notice to the party obligated to provide indemnity (the
"INDEMNITOR") with respect to the Claim after the receipt by the Indemnitee of
reliable information of the facts constituting the basis for the Claim; but the
failure to timely give such notice shall not relieve the Indemnitor from any
obligation under this Agreement, except to the extent, if any, that the
Indemnitor is materially prejudiced thereby.
(b) Upon receipt of written notice from the Indemnitee of a Claim, the
Indemnitor shall provide counsel (such counsel subject to the reasonable
approval of the Indemnitee) to defend the Indemnitee against the matter from
which the Claim arose, at the Indemnitor's sole cost, risk and expense. The
Indemnitee shall cooperate in all reasonable respects, at the Indemnitor's sole
cost, risk and expense, with the Indemnitor in the investigation, trial, defense
and any appeal arising from the matter from which the Claim arose; provided,
however, that the Indemnitee may (but shall not be obligated to) participate in
any such investigation, trial, defense and any appeal arising in connection with
the Claim. If the Indemnitee's participation in any such investigation, trial,
defense and any appeal arising from such Claim relates to a legal position or
defense that varies materially from the legal positions or defenses pursued by
the Indemnitor, and if the Indemnitee reasonably believes that the Indemnitee's
interests will be adversely and materially affected if such legal position or
defense is not pursued, the Indemnitor shall bear the expense of the
Indemnitee's separate participation, including all fees, costs and expenses of
one separate counsel for the Indemnitee (or multiple Indemnitees). If the
Indemnitee elects to so participate, the Indemnitor shall cooperate with the
Indemnitee, and the Indemnitor shall deliver to the Indemnitee or its counsel
copies of all pleadings and other information within the Indemnitor's knowledge
or possession reasonably requested by the Indemnitee or its counsel that is
relevant to the defense of such Claim and that will not prejudice the
Indemnitor's position, claims or defenses. The Indemnitee and its counsel shall
maintain confidentiality with respect to all such information consistent with
the conduct of a defense hereunder. The Indemnitor shall have the right to elect
to settle any claim for monetary damages only without the Indemnitee's consent,
if the settlement includes a complete release of the Indemnitee. If the
settlement does not include such a release, it will be subject to the consent of
the Indemnitee, which will not be unreasonably withheld. The Indemnitor may not
admit any liability of the Indemnitee or waive any of the Indemnitee's rights
without the Indemnitee's prior written consent, which will not be unreasonably
withheld. If the subject of any Claim results in a judgment or settlement, the
Indemnitor shall promptly pay such judgment or settlement.
(c) If the Indemnitor fails to assume the defense of the subject of any
Claim in accordance with the terms of Section 5.4(b), if the Indemnitor fails
diligently to prosecute such defense, or if the Indemnitor has, in the
Indemnitee's good faith judgment, a conflict of interest, the Indemnitee may
defend against the subject of the Claim, at the Indemnitor's sole cost, risk and
expense, in such manner and on such terms as the Indemnitee deems appropriate,
including, without limitation, settling the subject of the Claim after giving
reasonable notice to the Indemnitor. If the Indemnitee defends the subject of a
Claim in accordance with this Section, the
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Indemnitor shall cooperate with the Indemnitee and its counsel, at the
Indemnitor's sole cost, risk and expense, in all reasonable respects, and shall
deliver to the Indemnitee or its counsel copies of all pleadings and other
information within the Indemnitor's knowledge or possession reasonably requested
by the Indemnitee or its counsel that are relevant to the defense of the subject
of any such Claim and that will not prejudice the Indemnitor's position, claims
or defenses. The Indemnitee shall maintain confidentiality with respect to all
such information consistent with the conduct of a defense hereunder.
(d) The obligation of the Indemnitor to indemnify the Indemnitee against
Losses arising under this Agreement shall be in addition to any other
obligations the Indemnitor might otherwise have and any other rights the
Indemnitee might otherwise have.
5.5 PAYMENT.
All payments owing under this Article 5 will be made promptly as
indemnifiable Losses are incurred. If the Indemnitee defends the subject matter
of any Claim in accordance with Section 5.4(c) or proceeds with separate counsel
in accordance with Section 5.4(b), the expenses (including attorneys' fees)
incurred by the Indemnitee shall be paid by the Indemnitor in advance of the
final disposition of such matter as incurred by the Indemnitee, if the
Indemnitee undertakes in writing to repay any such advances in the event that it
is ultimately determined that the Indemnitee is not entitled to indemnification
under the terms of this Agreement or applicable law.
5.6 LIMITATIONS.
(a) Notwithstanding any provision of this Agreement to the contrary, no
party shall have any obligation to indemnify any person entitled to indemnity
under this Article 5 or to pay damages in respect of contract or other claims
arising under this Agreement or any other Transaction Document unless the
persons so entitled to indemnity or recovery thereunder have suffered Losses in
an aggregate amount attributable to all Claims and obligors in excess of Fifty
Thousand Dollars ($50,000) (the "THRESHOLD"), except claims arising from any
breach of the representations and warranties contained in Section 2.21 (Taxes)
shall not be subject to the Threshold. Once the aggregate amount of Losses
exceeds the Threshold, persons entitled to recovery shall be entitled to recover
the full amount of all Losses in excess of the Threshold. No person shall be
entitled to indemnification under this Article 5 for Losses directly or
indirectly caused by a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement or any duty to the
potential Indemnitor.
(b) The maximum aggregate liability of Seller and the Stockholders, on
the one hand, to Buyer, and Buyer, on the other hand, to Seller, for all claims
arising under this Agreement and the other Transaction Documents shall equal the
aggregate Purchase Price. For purposes of this Section 5.6(b), the value of
Shares received shall be (i) prior to the IPO, the per share Agreed Price (as
defined in the Stockholder Agreement) then prevailing; and (ii) after the IPO,
the per share closing price on the primary exchange or market on which the
Common Stock is traded on
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the date such indemnifiable Losses become payable, except that the value of any
Shares sold in bona fide third party transactions will be the gross proceeds to
the seller of such sale.
6. CONDITIONS TO CLOSING.
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY.
The obligations of Buyer, on the one hand, and the Stockholders and
Seller, on the other hand, to consummate the transactions contemplated hereby
are subject to the fulfillment, at or before the Closing Date, of the conditions
set forth in this Section 6.1, any one or more of which may be waived in writing
by the party entitled to the benefit of such condition; provided, however, that
such waiver will not diminish such party's right to indemnification pursuant to
Article 5, unless so stated, and provided further that Seller and the
Stockholders will be required to perform their obligations hereunder,
notwithstanding lack of fulfillment of the conditions set forth in this Section
6.1, if Buyer agrees in writing to be liable for, and to indemnify Seller and
the Stockholders from and against, any obligations that Seller or the
Stockholders would incur as a result of consummating the transactions
contemplated hereby notwithstanding the fact that the conditions in this Section
6.1 have not been fulfilled.
(a) No Action or Proceeding. No preliminary or permanent injunction or
other order issued by any Governmental Entity that declares this Agreement
invalid in any material respect or prevents or would be violated by the
consummation of the transactions contemplated hereby, or which materially
adversely affects the assets, properties, operations, net income or financial
condition of Seller, is in effect; and no action or proceeding has been
instituted or threatened by any Governmental Entity, other person, or entity
which seeks to prevent or delay the consummation of the transactions
contemplated by this Agreement or which challenges the validity or
enforceability of this Agreement, the result of which could constitute a
Material Adverse Change.
(b) Compliance with Law. There shall have been obtained all permits,
approvals, and consents of all Governmental Entities that counsel for Buyer or
for Seller may reasonably deem necessary or appropriate so that consummation of
the transactions contemplated by this Agreement will be in compliance with
applicable laws, including, without limitation, expiration or termination of the
waiting period prescribed by the HSR Act.
6.2 CONDITIONS TO OBLIGATIONS OF BUYER.
The obligations of Buyer to consummate the transactions contemplated
hereby are subject to the fulfillment, at or before the Closing Date, of the
conditions set forth in this Section 6.2, any one or more of which may be waived
by Buyer in writing in its discretion; provided however, such waiver will not
waive or diminish Buyer's right to indemnification pursuant to Article 5, unless
so stated:
(a) Representations and Warranties True. The representations and
warranties of Seller and the Stockholders contained in this Agreement or in any
other Transaction Document shall be true and correct in all material respects as
of the date hereof and on the Closing Date,
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and at the Closing Seller and the Stockholders shall each have delivered to
Buyer a certificate dated the Closing Date to such effect signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
Seller and by the Stockholders.
(b) Performance of Seller and the Stockholders. Seller and the
Stockholders shall have performed in all material respects all obligations
required to be performed by each of them under this Agreement on or before the
Closing Date, and at the Closing Seller and the Stockholders shall each have
delivered to Buyer a certificate to such effect dated the Closing Date and
signed by, respectively, the President or any Vice President and the Secretary
or any Assistant Secretary of Seller and the Stockholders, as applicable.
(c) Additional Closing Documents of Seller. Buyer has received, or is
receiving at the Closing, all of the following, each duly executed by the
parties thereto (other than Buyer) and dated the Closing Date (or an earlier
date satisfactory to Buyer), in form and substance satisfactory to Buyer:
(i) Copies, certified by the Secretary or an Assistant Secretary
of Seller of resolutions of the Board of Directors and the Stockholders
authorizing the execution, delivery and performance of this Agreement and the
other Transaction Documents to be delivered by Seller and the consummation of
the transactions contemplated hereby and thereby;
(ii) The Bill of Sale described in Section 1.1;
(iii) Leasehold assignments or similar forms of conveyance in
proper statutory form for recording duly executed and acknowledged by Seller
covering the Real Property Leases to be conveyed to Buyer pursuant to this
Agreement;
(iv) Such further instruments of sale, transfer, conveyance,
assignment or delivery covering the Acquired Assets, or any part thereof, as
Buyer may reasonably require to assure the full and effective sale, transfer,
conveyance, assignment or delivery to it of the Acquired Assets to be
transferred pursuant to this Agreement;
(v) A Stockholder Agreement substantially in the form of Exhibit
F, executed and delivered by each recipient of Shares, together with a stock
power in the form of Exhibit F-1 executed by each recipient of Shares and the
spouse of each such recipient, if applicable;
(vi) A Voting Agreement substantially in the form of Exhibit G,
executed and delivered by each recipient of Shares;
(vii) A Subordination Agreement substantially in the form of
Exhibit H, executed and delivered by the recipient of the Note (as defined in
Schedule 1.4);
(viii) The Accredited Investor Questionnaire described in Section
2.23(g);
(ix) Each Employee General Release as described in Section
4.10(c); and
(x) Such other documents as Buyer may reasonably request.
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(d) Consents and Approvals. All consents, waivers, authorizations and
approvals of any Governmental Entity, and of any other person or entity,
required under the Contracts, Licenses, or otherwise in connection with the
execution, delivery and performance of this Agreement, absence of which could
result in material liability to Buyer or a Material Adverse Change or the
cancellation or adverse change in terms of, or payments under, any Contract,
shall have been duly obtained in form reasonably satisfactory to Buyer, shall be
in full force and effect on the Closing Date and the original executed copies
shall have been delivered to Buyer on or before the Closing Date.
(e) No Adverse Changes. Between the date of this Agreement and the
Closing Date there shall not have occurred any Material Adverse Change or any
event or circumstance that would reasonably be expected to result in a Material
Adverse Change.
(f) Due Diligence. Buyer is satisfied with the results of its due
diligence review of the Acquired Assets, the business, operations, financial
condition and prospects of Seller.
(g) Financing. Buyer shall have available, on commercially reasonable
terms, reasonably satisfactory to Buyer, debt financing sufficient to finance
the Cash Payment (as defined in Schedule 1.4), the cash portion of the purchase
price being paid by Buyer pursuant to each of the Consolidation Transactions and
to provide Buyer with adequate working capital following the transactions
contemplated hereby and the Consolidation Transactions.
(h) Closing Date Value. At the Closing Date Seller will have (i) a net
worth calculated according to GAAP, of at least Three Million Eight Hundred and
Forty-Three Thousand Dollars ($3,843,000), not counting Excluded Assets or
liabilities of Seller not assumed by Buyer, and (ii) sufficient working capital
to operate the Business; and at the Closing Seller shall have delivered to Buyer
a certificate dated the Closing Date to such effect with supporting financial
information, signed by the President or any Vice President and the Secretary or
any Assistant Secretary of Seller.
(i) No Default. Seller shall not be in default of any material
obligation.
(j) Employee Matters. Buyer shall be reasonably assured that employees
of a quantity and having the skills sufficient for the operation of the Business
are continuing their affiliation with the Business through employment with Buyer
or Buyer's Affiliates after the Closing; and Buyer has received an Employee
General Release executed by each person leaving the employ of Seller to become
an employee of Buyer or any of Buyer's Affiliates. Buyer shall have received an
employment agreement substantially in the form attached hereto as Exhibit I-1
for each key employee designated by Buyer or Exhibit I-2 for other employees
(each with conforming changes as appropriate for the employee), duly executed by
each of the persons named on Schedule 6.2;
(k) Opinion of Counsel. Buyer shall have received a favorable opinion,
dated as of the Closing Date, from counsel to Seller in substantially the form
of Exhibit J. In giving such opinion, such counsel may rely upon certificates of
public officials, upon opinions of local counsel and, as to matters of fact,
upon a certificate of Seller, or its officers, and such counsel may assume that
this Agreement has been duly authorized, executed and delivered by Buyer.
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(l) Schedules. Buyer shall have received final schedules to this
Agreement, prior to the Closing Date, from the Seller and the Stockholders which
accurately reflect the information required to be provided therein pursuant to
this Agreement and in form and substance satisfactory to the Buyer.
(m) Other Closing Documents. Buyer shall have received such other duly
executed certificates, instruments and documents in confirmation of the
representations and warranties of Seller or the Stockholders or in furtherance
of the transactions contemplated by this Agreement as Buyer or its counsel may
reasonably request.
6.3 CONDITIONS TO OBLIGATIONS OF SELLER.
The obligations of Seller to consummate the transactions contemplated
hereby are subject to the fulfillment, at or before the Closing Date, of the
conditions set forth in this Section 6.3, any one or more of which may be waived
by Seller in writing in its discretion; provided however, such waiver will not
waive or diminish the right of Seller to indemnification pursuant to Article 5,
unless so stated:
(a) Representations and Warranties True. The representations and
warranties of Buyer contained in this Agreement or in any other Transaction
Document shall be true and correct in all material respects on the date hereof
and on the Closing Date, and at the Closing Buyer shall have delivered to Seller
a certificate to such effect dated the Closing Date, signed by the President or
any Vice President and the Secretary or any Assistant Secretary of Buyer.
(b) Performance of Covenants. Buyer shall have performed in all material
respects all obligations required to be performed by Buyer under this Agreement
on or before the Closing Date, and at the Closing Buyer shall have delivered to
Seller a certificate to such effect dated the Closing Date signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
Buyer.
(c) Additional Closing Documents of Buyer. Buyer has executed and
delivered, or is executing and delivering at the Closing the following
documents, each dated the Closing Date:
(i) Copies, certified by the Secretary or an Assistant Secretary
of Buyer, of resolutions of its Board of Directors authorizing the
execution and delivery of this Agreement and the other Transaction
Documents to be delivered by Buyer and the consummation of the
transactions contemplated hereby;
(ii) The Assumption Agreement as described in Section 1.3;
(iii) The Cash Payment (as defined in Schedule 1.4);
(iv) The Note;
(v) A photocopy of the certificates evidencing the Shares (as
defined in Schedule 1.4);
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(vi) An employment agreement substantially in the form attached
hereto as Exhibit I-1 for each key employee designated by Buyer or
Exhibit I-2 for other employees (each with conforming changes as
appropriate for the employee) with each of the persons named on Schedule
6.2; and
(vii) Such other closing documents as Seller may reasonably
request.
(d) Opinion of Counsel. Seller shall have received a favorable opinion,
dated as of the Closing Date, from counsel to Buyer in substantially the form of
Exhibit K. In giving such opinion, such counsel may rely upon certificates of
public officials, upon opinions of local counsel and, as to matters of fact,
upon a certificate of Buyer, and such counsel may assume that this Agreement has
been duly authorized, executed and delivered by Seller and the Stockholders.
(e) Concurrent Acquisitions. Prior to or concurrent with the Closing,
Buyer shall have closed or be closing Consolidation Transactions with companies,
including Seller, having aggregate Pre-tax Income of at least $20 million and at
the Closing Buyer shall have delivered to Seller a certificate to such effect in
substantially the form of Exhibit L, dated the Closing Date, signed by the
President or any Vice President and the Secretary or any Assistant Secretary of
Buyer. For these purposes, "PRE-TAX INCOME" of any particular company means that
company's projected 1998 pre-tax income, as adjusted pursuant to agreement
between Buyer and that company to reflect certain cost reductions and modified
business practices and accounting methods expected to take effect after the
closing of the Consolidation Transactions.
(f) Tax Treatment. Buyer shall have received from Ernst & Young LLP a
tax opinion to the effect that the purchase and sale of the Acquired Assets
contemplated hereby should qualify for treatment under Section 351 of the Code,
which opinion will permit reliance thereon by Seller and the Stockholders.
7. MISCELLANEOUS.
7.1 TERMINATION.
This Agreement and the transactions contemplated hereby may be
terminated (a) by Buyer, if (i) Seller or the Stockholders fail to comply in any
material respect with any of its or their covenants or agreements contained
herein, or (ii) any of the representations and warranties of Seller or the
Stockholders is breached or is inaccurate in any material way; (b) by Seller if
(i) Buyer fails to comply in any material respect with any of its covenants or
agreements contained herein, or (ii) any of the representations and warranties
of Buyer is breached or is inaccurate in any material way; or (c) by Seller or
Buyer if (i) a Governmental Entity has issued a non-appealable order, decree or
ruling or taken any other action (which order, decree or ruling the parties
hereto have used their best efforts to lift), which permanently restrains,
enjoins or otherwise prohibits the transactions contemplated by this Agreement;
or (ii) a condition to its performance hereunder has not been satisfied or
waived prior to November 30, 1998, provided however, that if the board of
directors of Buyer should, in good faith, determine that it is necessary to
extend the Closing for the purpose of facilitating the financing of the
Consolidation Transactions, it may extend such date by thirty-five (35) days.
Notwithstanding the foregoing, a
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party may not terminate this Agreement if the event giving rise to the
termination right results from the willful failure of such party to perform or
observe any of the covenants or agreements set forth herein to be performed or
observed by such party or if such party is, at such time, in material breach of
this Agreement.
In the event of termination of this Agreement pursuant to this Section
7.1, written notice shall be given forthwith by the terminating party to the
other parties and this Agreement will terminate and the transactions
contemplated hereby will be abandoned, without further action by any party. If
this Agreement is terminated as provided herein, no party to this Agreement will
have any liability or further obligation to any other party to this Agreement
except as provided in Sections 2.26 (Brokers), 4.2 (Confidentiality), 7.12
(Expenses), 7.13 (Arbitration), 7.14 (Submission to Jurisdiction) and 7.15
(Attorneys' Fees), and except that termination of this Agreement will not affect
any liability of any party for any breach of this Agreement prior to
termination, or any breach at any time of the provisions hereof surviving
termination.
7.2 NOTICES.
All notices, requests, demands and other communications hereunder shall
be in writing and shall be deemed given upon personal delivery or three (3) days
after being mailed by certified or registered mail, postage prepaid, return
receipt requested, or one (1) business day after being sent via a nationally
recognized overnight courier service if overnight courier service is requested
from such service or upon receipt of electronic or other confirmation of
transmission if sent via facsimile to the parties, their successors in interest
or their assignees at the following addresses and telephone numbers, or at such
other addresses or telephone numbers as the parties may designate by written
notice in accordance with this Section 7.2:
If to Buyer: Chief Executive Officer
ProfitSource Corporation
695 Town Center Drive, Suite 400
Costa Mesa, California 92626
Tel: (714) 429-5500
Fax: (714) 429-5559
With a copy to: Brian W. Copple
Gibson, Dunn & Crutcher LLP
4 Park Plaza, Jamboree Center
Irvine, California 92614
Tel: (949) 451-3874
Fax: (949) 451-4220
If to Seller or any Stockholder:
David Hoffmann
DHR International, Inc.
10 South Riverside Plaza, Suite 220
Chicago, Illinois 60606
Tel: 312-782-1581
Fax: 312-782-2096
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With a copy to: Day, Campbell & McGill LLP
Rowland Day
3070 Bristol, Suite 650
Costa Mesa, California 92626
Tel: 714-429-2919
Fax: 714-429-2901
7.3 ASSIGNABILITY AND PARTIES IN INTEREST.
This Agreement and the rights, interests or obligations hereunder may
not be assigned by any of the parties hereto, except that Buyer may assign its
rights and obligations under this Agreement in whole or in part to any Affiliate
or Affiliates of Buyer or any successor to all or substantially all of the
business or assets of Buyer. This Agreement shall inure to the benefit of and be
binding upon Buyer and Seller and their respective permitted successors and
assigns and upon each Stockholder and his [or her] executors, administrators,
heirs, legal representatives and permitted successors and assigns. Nothing in
this Agreement will confer upon any person or entity not a party to this
Agreement, or the legal representatives of such person or entity, any rights or
remedies of any nature or kind whatsoever under or by reason of this Agreement.
7.4 GOVERNING LAW.
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of California, without regard to its
conflicts-of-law principles.
7.5 COUNTERPARTS.
Facsimile transmission of any signed original document and/or
retransmission of any signed facsimile transmission will be deemed the same as
delivery of an original. At the request of any party, the parties will confirm
facsimile transmission by signing a duplicate original document. This Agreement
may be executed in counterparts, each of which shall be deemed an original, but
all of which shall constitute but one and the same instrument.
7.6 PUBLICITY.
Prior to the Closing Date, no party may, or may it permit its Affiliates
to, issue or cause the publication of any press release or other public
announcement with respect to this Agreement or the transactions contemplated
hereby without the prior written consent of Buyer and Seller, except that Buyer
may disclose details of this Agreement to other participants in, or as necessary
to effect, the Consolidation Transactions. Notwithstanding the foregoing, in the
event any such press release or announcement is required by law to be made by
the party proposing to issue the same, such party shall consult in good faith
with the other party as far in advance as practicable to the issuance of any
such press release or announcement.
7.7 COMPLETE AGREEMENT.
This Agreement, the exhibits and schedules hereto, and the other
Transaction Documents contain or will contain the entire agreement between the
parties hereto with respect to the
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transactions contemplated herein and therein and shall supersede all previous
oral and written and all contemporaneous oral negotiations, commitments, and
understandings.
7.8 MODIFICATIONS, AMENDMENTS AND WAIVERS.
At any time prior to the Closing Date or termination of this Agreement,
any party may, (a) waive any inaccuracies in the representations and warranties
of any other party contained in this Agreement or in any other Transaction
Document; and (b) waive compliance by any other party with any of the covenants
or agreements contained in this Agreement. No waiver of any of the provisions of
this Agreement will be considered, or will constitute, a waiver of any of the
rights of remedies, at law or equity, of the party entitled to the benefit of
such provisions unless made in writing and executed by the party entitled to the
benefit of such provision.
7.9 HEADINGS; REFERENCES.
The headings contained in this Agreement and the other Transaction
Documents are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. References herein to Articles,
Sections, Schedules and Exhibits refer to the referenced Articles, Sections,
Schedules or Exhibits hereof unless otherwise specified.
7.10 SEVERABILITY.
Any provision of this Agreement which is invalid, illegal, or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity, illegality, or unenforceability, without
affecting in any way the remaining provisions hereof in such jurisdiction or
rendering that or any other provision of this Agreement invalid, illegal, or
unenforceable in any other jurisdiction.
7.11 INVESTIGATION.
All representations and warranties contained herein which are made to
the knowledge of a party shall require that such party make reasonable
investigation and inquiry with respect thereto to ascertain the correctness and
validity thereof. Representations and warranties made to the knowledge of Seller
shall be deemed made to the knowledge of the Stockholders only and no other
person.
7.12 EXPENSES OF TRANSACTIONS.
All fees, costs and expenses incurred by Buyer in connection with the
transactions contemplated by this Agreement shall be borne by Buyer, and all
fees, costs, and expenses incurred by Seller or the Stockholders in connection
with the transactions contemplated by this Agreement shall be borne by Seller
and the Stockholders jointly and severally.
7.13 ARBITRATION.
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(a) (i) Any controversy or claim arising out of or relating to this
Agreement shall be solely and finally settled by arbitration administered by the
American Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules as then in effect (the "RULES"), except to the extent such
Rules vary from the following provisions. Notwithstanding the previous sentence,
the parties hereto may seek provisional remedies in courts of appropriate
jurisdiction, and such request shall not be deemed a waiver of the right to
compel arbitration of a dispute hereunder.
(ii) If any controversy or claim arising out of or relating to this
Agreement or any other Transaction Document also arises out of or relates to the
employment of any Stockholder by Buyer or any Affiliate of Buyer, the provisions
of this Agreement governing dispute resolution shall govern resolution of such
controversy or claim. The provisions of this Agreement governing dispute
resolution supersede any provisions relating to such matters in any employment
agreement between any Stockholder and Buyer or any Affiliate of Buyer.
(iii) The arbitration shall be conducted by one independent and
impartial arbitrator, appointed by the AAA; provided however, if the claim and
any counterclaim, in the aggregate, together with other arbitrations that are
consolidated pursuant to Section 7.13(f), exceed Five Hundred Thousand Dollars
($500,000) (the "ARBITRATION THRESHOLD"), exclusive of interest and attorneys'
fees, the dispute shall be heard and determined by three (3) arbitrators as
provided herein (such arbitrator or arbitrators are hereinafter referred to as
the "ARBITRATOR"). The judgment of the award rendered by the Arbitrator may be
entered in any court having jurisdiction thereof. The arbitration proceedings
shall be held in Orange County, California unless the parties to the arbitration
agree to another location.
(b) If a party hereto determines to submit a dispute for arbitration
pursuant to this Section 7.13, such party shall furnish the other party with
whom it has the dispute with a notice of arbitration as provided in the Rules
(an "ARBITRATION NOTICE") which, in addition to the items required by the Rules,
shall include a statement of the nature, with reasonable detail, of the dispute.
A copy of the Arbitration Notice shall be concurrently provided to the AAA,
along with a copy of this Agreement, and if pursuant to Section 7.13(a) one (1)
Arbitrator is to be appointed, a request to appoint the Arbitrator. If a party
has a counterclaim against the other party, such party shall furnish the party
with whom it has the dispute a notice of such claim as provided in the Rules (a
"NOTICE OF COUNTERCLAIM") within ten (10) days of receipt of the Arbitration
Notice, which, in addition to the items required by the Rules, shall include a
statement of the nature, with reasonable detail, of the dispute. A copy of the
Notice of Counterclaim shall be concurrently provided to the AAA. If the claim
set forth in the Notice of Counterclaim causes the aggregate amount in dispute
to exceed the Arbitration Threshold, the Notice of Counterclaim shall so state.
If pursuant to Section 7.13(a) three (3) Arbitrators are to be appointed, within
fifteen (15) days after receipt of the Arbitration Notice or the Notice of
Counterclaim as applicable, each party shall select one person to act as
Arbitrator and the two (2) selected shall select a third arbitrator within ten
(10) days of their appointment. If the Arbitrators selected by the parties are
unable or fail to agree upon the third arbitrator within such time, the third
arbitrator shall be selected by the AAA. Each arbitrator shall be a practicing
attorney or a retired or former judge with at least
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twenty (20) years experience with and knowledge of securities laws, complex
business transactions, and mergers and acquisitions.
(c) Once an Arbitrator is assigned to hear the matter, the Arbitrator
shall schedule a pre-hearing conference to reach agreement on procedural and
scheduling matters, arrange for the exchange of information, obtain stipulations
and attempt to narrow the issues.
(d) At the pre-hearing conference, the Arbitrator shall have the
discretion to order, to the extent the Arbitrator deems relevant and
appropriate, that each party may (i) serve a maximum of one set of no more than
twenty (20) requests for production of documents and one set of ten (10)
interrogatories (without subparts) upon the other parties; and (ii) depose a
maximum of five (5) witnesses. All objections to discovery are reserved for the
arbitration hearing except for objections based on privilege and proprietary or
confidential information. The responses to the document demand, the documents to
be produced thereunder, and the responses to the interrogatories shall be
delivered to the propounding party thirty (30) days after receipt by the
responding party of such document demand or interrogatory. Each deposition shall
be taken on reasonable notice to the deponent, and must be concluded within
eight (8) hours and all depositions must be taken within forty-five (45) days
following the pre-hearing conference. Any party deposing an opponent's expert
must pay the expert's fee for attending the deposition. All discovery disputes
shall be decided by the Arbitrator.
(e) The parties must file briefs with the Arbitrator at least three (3)
days before the arbitration hearing, specifying the facts each intends to prove
and analyzing the applicable law. The parties have the right to representation
by legal counsel throughout the arbitration proceedings. The presentation of
evidence at the arbitration hearing shall be governed by the Federal Rules of
Evidence. Oral evidence given at the arbitration hearing shall be given under
oath. Any party desiring a stenographic record may secure a court reporter to
attend the arbitration proceedings. The party requesting the court reporter must
notify the other parties and the Arbitrator of the arrangement in advance of the
hearing, and must pay for the cost incurred.
(f) Any arbitration can be consolidated with one or more arbitrations
involving other parties, which arise under agreement(s) between the Buyer and
such other parties, if more than one such arbitration is commenced and any party
thereto contends that two or more arbitrations are substantially related and
that the issues should be heard in one proceeding, the Arbitrator selected in
the first-filed of such proceedings shall determine whether, in the interests of
justice and efficiency, the proceedings should be consolidated before that
Arbitrator.
(g) The Arbitrator's award shall be in writing, signed by the Arbitrator
and shall contain a concise statement regarding the reasons for the disposition
of any claim.
(h) To the extent permissible under applicable law, the award of the
Arbitrator shall be final. It is the intent of the parties that the arbitration
provisions hereof be enforced to the fullest extent permitted by applicable law.
7.14 SUBMISSION TO JURISDICTION.
All actions or proceedings arising in connection with this Agreement for
preliminary or injunctive relief or matters not subject to arbitration, if any,
shall be tried and litigated
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exclusively in the state or federal courts located in the County of Orange,
State of California. The aforementioned choice of venue is intended by the
parties to be mandatory and not permissive in nature, thereby precluding the
possibility of litigation between the parties with respect to or arising out of
this Agreement in any jurisdiction other than that specified in this paragraph.
Each party hereby waives any right it may have to assert the doctrine of forum
non conveniens or similar doctrine or to object to venue with respect to any
proceeding brought in accordance with this paragraph, and stipulates that the
State and Federal courts located in the County of Orange, State of California
shall have in personam jurisdiction over each of them for the purpose of
litigating any such dispute, controversy, or proceeding. Each party hereby
authorizes and accepts service of process sufficient for personal jurisdiction
in any action against it as contemplated by this Section by registered or
certified mail, return receipt requested, postage prepaid, to its address for
the giving of notices as set forth in Section 7.2. Nothing herein shall affect
the right of any party to serve process in any other manner permitted by law.
7.15 ATTORNEYS' FEES.
If Buyer or any of its Affiliates, successors or assigns brings any
action, suit, counterclaim, cross-claim, appeal, arbitration, or mediation for
any relief against Seller or any of its Affiliates, successors or assigns or any
Stockholder, or if Seller or any of its Affiliates, successors or assigns or any
Stockholder brings any action, suit, counterclaim, cross-claim, appeal,
arbitration, or mediation for any relief against Buyer or any of its Affiliates,
successors or assigns, declaratory or otherwise, to enforce the terms hereof or
to declare rights hereunder (collectively, an "ACTION"), in addition to any
damages and costs which the prevailing party otherwise would be entitled, the
non-prevailing party shall pay to the prevailing party a reasonable sum for
attorneys' fees and costs (at the prevailing party's attorneys' then-prevailing
rates) incurred in bringing and prosecuting such Action and/or enforcing any
judgment, order, ruling, or award (collectively, a "DECISION") granted therein,
all of which shall be deemed to have accrued on the commencement of such Action
and shall be paid whether or not such action is prosecuted to a Decision. Any
Decision entered in such Action shall contain a specific provision providing for
the recovery of attorneys' fees and costs incurred in enforcing such Decision.
For the purposes of this Section, attorneys' fees shall include, without
limitation, fees incurred in the following: (1) postjudgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
For purposes of this paragraph, "PREVAILING PARTY" includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the prevailing party shall be determined with respect to each claim separately.
The prevailing party shall be the party who has obtained the greater relief in
connection with any particular claim, although, with respect to any claim, it
may be determined that there is no prevailing party.
7.16 ENFORCEMENT OF THE AGREEMENT.
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Seller, the Stockholders and Buyer acknowledge that irreparable damage would
occur if any of the obligations of Seller and the Stockholders under this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. Buyer will be entitled to an injunction or injunctions to
prevent breaches of this Agreement by Seller or the Stockholders and to enforce
specifically the terms and provisions hereto, this being in addition to any
other remedy to which Buyer is entitled at law or in equity.
7.17 FORM OF AGREEMENT.
The original text of this Agreement contained certain errors and
ambiguities, which are corrected by this version of the agreement. This version
of the Agreement is made effective as of the Effective Date, without any
representations or inducements not set forth herein, solely to set forth the
parties' agreement with respect to the subject matter hereof, and supersedes all
previous versions.
[SIGNATURES INTENTIONALLY APPEAR ON THE FOLLOWING PAGE]
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IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first above written.
PROFITSOURCE CORPORATION
"BUYER"
By: /s/ MARK C. COLEMAN
------------------------------------
Name: Mark C. Coleman
----------------------------------
Title: SVP
---------------------------------
DHR INTERNATIONAL, INC.
"SELLER"
By: /s/ DAVID H. HOFFMANN
------------------------------------
David H. Hoffmann
Chairman/CEO
STOCKHOLDER REPRESENTATIVE
/s/ DAVID H. HOFFMANN
- ---------------------------------------
David H. Hoffmann
STOCKHOLDERS
/s/ DAVID H. HOFFMANN
- ---------------------------------------
David H. Hoffmann
/s/ JERRILYN M. HOFFMANN
- ---------------------------------------
Jerrilyn M. Hoffmann
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